The Procter & Gamble Company v. Bankers Trust Company, Bt Securities Corporation, the McGraw Companies, Inc.

78 F.3d 219

• Court: Court of Appeals for the Sixth Circuit
• Decided: May 8, 1996
• Docket: 95-4078
• Status: Published

Opinions

MERRITT, C.J., delivered the opinion of the court, in which MARTIN, J., joined, with MARTIN, J. (pp. 227-28), also delivering a separate concurring opinion. BROWN, J. (pp. 229-32), delivered a separate dissenting opinion.

MERRITT, Chief Judge.

In a case of widespread interest to the press, the District Court issued an injunction prohibiting Business Week magazine from publishing an article disclosing the contents of documents placed under the seal of secrecy by the parties to a lawsuit. This appeal raises the issue of whether the bedrock First Amendment principle that the press shall not be subjected to prior restraints can be set aside when a federal court perceives a threat to the secrecy of material placed under seal by stipulation of the parties. We are guided by the holding of the First Circuit in In the Matter of Providence Journal Company that even a temporary restraint on pure speech is improper “absent the most compelling circumstances.” 820 F.2d 1342, 1351, modified on reh’g by 820 F.2d 1354 (1st Cir.1986), cert, granted and dismissed on other grounds. Such circumstances are not present in the case at bar, and we therefore hold that the District Court erred in granting the orders challenged here.

The District Court maintained its prior restraint on publication for three weeks by successive injunctive orders. It then sought to avoid review under the mootness doctrine by entering a permanent injunction against publishing the original secret documents while simultaneously making photocopies public. The case is not moot because the permanent injunction against publication of the original documents remains in effect and because temporary restraints on speech fall within the well-recognized exception to mootness for wrongs that are “capable of repetition, yet evading review.” See Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S.Ct. 279, 283, 55 L.Ed. 310 (1911).

I. Facts

On October 27, 1994, Procter & Gamble (“P & G”) filed a complaint against Bankers Trust¹ (“Bankers”) claiming a loss of over $100 million due to alleged fraud by Bankers in the sale of derivatives to P & G. The case has received widespread coverage, especially in the business press.

In January of 1995, Bankers and P & G agreed to a broad stipulated protective order as part of the discovery process. The order provided that parties and non-parties to the litigation — without court approval for “good cause” as required by Rule 26(e) of the Civil Rules — could, in their discretion, designate discovery material as “confidential” and could have such material filed under seal if the parties agreed that it reflected “trade secrets or other confidential research, development or commercial information____” J.A. at 14. The parties and not the court would determine whether particular documents met the requirements of Rule 26. The protective order further provided that the parties could modify its terms without approval of the court. J.A. at 21. The presiding judge, the late Judge Carl Rubin during his terminal illness, signed the stipulated order allowing the parties to conduct the discovery process in secret. Judge John Feikens, the former Chief Judge of the Eastern District of Michigan, was assigned the case after Judge Rubin’s death, and he therefore inherited this unusual protective order and the voluminous set of documents already filed under the seal of secrecy.

Without notice to Business Week or a request for a hearing, on Wednesday, September 13, 1995, Bankers and P & G alerted Judge Feikens that Business Week, a magazine owned by McGraw-Hill, had obtained documents from the Bankers/P & G litigation that the parties wanted to remain secret. The documents in question were materials supporting a motion by P & G for leave to amend its complaint. Although the motion itself was not sealed, the accompanying documents, which contained a supporting memorandum of law, a proposed Second Amended Complaint containing RICO allegations, and a RICO case statement, were filed in secret pursuant to the protective order. Neither Bankers nor P & G could say at that time how Business Week had obtained the documents.

Shortly before six o’clock, again without notice or a hearing, Judge Feikens — at the urgent request of both parties — transmitted by facsimile an order to McGraw-Hill enjoining and prohibiting them from publishing the documents without consent of the court. It stated that the parties would “suffer irreparable harm” if the documents were disclosed, but it did not state a reason. The order was open-ended in duration and did not set a date for a hearing. Business Week obeyed the order, pulling its story before its nine p.m. publication deadline.

The following day, September 14, McGraw-Hill filed for a stay of the District Court order and an expedited appeal with the Sixth Circuit. A Sixth Circuit panel heard oral argument and on Tuesday, September 19, dismissed the appeal on the grounds that the order could “best be characterized as a temporary restraining order” and was therefore not a final order and not appealable. The panel did not treat the order as a request for mandamus or exercise its discretion by mandamus to set aside the prior restraint. Later that day, McGrawHill sought an emergency stay from Justice Stevens of the United States Supreme Court.

On September 21, Justice Stevens denied the stay, stating that the wiser course would be to return to the District Court for a fact-finding hearing on the matter. That same day, the District Court commenced what would be a two-day hearing to determine how the documents had been obtained and whether the injunction should remain in place. On September 22, ten days after the original injunctive order, the District Court entered another order extending the September 13th order for another ten days and conducted more hearings.

The hearings revealed that the documents had found their way to Business Week through an unusual chain of people and events. Business Week’s editor on the story, Zachary Schiller, testified on the basis of his reporter’s notes to a tantalizing, off-the-reeord phone call from an employee in the public relations department of P & G who suggested that some documents that would be of interest to Business Week were about to be filed at the courthouse. (It seems that the tactics of P & G’s public relations office were a little different from those of its lawyers.) Schiller notified several Business Week journalists that he was seeking information about the mysterious filing.

While Schiller was away from his office, a New York-based journalist for Business Week contacted an acquaintance who was a partner at the New York law firm representing Bankers Trust. Neither the partner (who was not working on the P & G case) nor the journalist (who had not previously been covering the story), appeared to know that the material was under seal. The journalist simply asked for the documents, and the partner obtained copies and gave them to her. The circle of irony became complete. Banker’s New York lawyers unwittingly also followed tactics different from those of its litigators. It appears that Business Week found out about the sealed material because of a P & G leak and got the documents through a leak from Banker’s Trust.

With this information before it, the District Court entered two orders on October 3rd, three weeks after its initial order restraining publication. In one order, the District Court concluded that Business Week “knowingly violated the protective order” by obtaining the documents and was therefore prohibited and permanently enjoined from using “the confidential materials that it obtained unlawfully.” J.A. at 49. (“I conclude as a matter of law that Business Week cannot be permitted to use the confidential materials it obtained to publish its story.” J.A. at 47.) This injunction remains in effect. In the other order, the District Court determined that, because the parties could not provide a “substantial government interest” in keeping the documents confidential, “the sealed documents should no longer be protected” and should be released into the public domain. J.A. at 33-34.

II. Analysis

A. Mootness

The first issue requiring analysis is whether Judge Feikens’ order unsealing the documents and releasing them into the public domain renders the present case moot. Although it might at first appear so, the Supreme Court has long recognized an exception to the mootness doctrine for wrongs “capable of repetition, yet evading review.” Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S.Ct. 279, 283, 55 L.Ed. 310 (1911); see also Nebraska Press Assn. v. Stuart, 427 U.S. 539, 546, 96 S.Ct. 2791, 2796-97, 49 L.Ed.2d 683 (1976). The initial restraining orders meet both criteria and therefore fall within the exception.

The “capable of repetition” requirement is satisfied by the “reasonable expectation” that the same complainant will be subject to similar action in the future. Globe Newspaper v. Superior Court, 457 U.S. 596, 603, 102 S.Ct. 2613, 2618, 73 L.Ed.2d 248 (1982) (newspaper serving Boston metropolitan area would “someday be subjected to another order” based on the same contested rule); Gannett Co. v. DePasquale, 443 U.S. 368, 377-78, 99 S.Ct. 2898, 2904, 61 L.Ed.2d 608 (1979) (“capable of repetition” requirement satisfied by reasonable expectation that publisher of New York newspapers would be subject to similar orders by New York courts). Here, the underlying case between Bankers and P & G continues and the protective order remains in place. The parties will probably want to continue to keep the details of the case undisclosed. This creates a reasonable and ongoing expectation that another conflict may arise between the desire of the private litigants to keep their dispute out of the public eye and McGraw-Hill’s interest in reporting on matters of public concern. The increasing, routine use of protective orders in the courts only assures that challenges of this type will continue to occur. See Hendricks & Moch, Protective Orders: The Industry’s Silencer on the Smoking Gun, 73 Mich.B.J. 424 (May, 1994) (“Corporate defendants now seek protective orders as a matter of routine.”).

With respect to the “evading review” prong, the initial restraining orders satisfy the requirement. The temporary restraining orders are inherently of a “duration too short to be fully litigated.” See, e.g., Gannett, 443 U.S. at 377, 99 S.Ct. at 2904 (“evading review” test met where “the challenged action [is] in its duration too short to be fully litigated prior to its cessation or expiration.”). See also, Carroll v. President and Comm’rs of Princess Anne, 393 U.S. 175, 177-179, 89 S.Ct. 347, 349-351, 21 L.Ed.2d 325 (1968) (issues raised by expired ten-day restraining order not moot). Consequently, important procedural issues raised by the unusual circumstances of a prior restraint, including how quickly the judge must act, whether ex parte action is permitted, and whether there must be a hearing in which a court addresses a TRO petition, would always evade review absent this exception to mootness. To say that a prior restraint for three weeks by TRO is moot after dissolution would mean that a district court may create an unreasonable three-week exception to the prior restraint rule. Ex parte prior restraints without a hearing are equally unreviewable. Because “each passing day may constitute a separate and cognizable infringement of the First Amendment,” Nebraska Press Assn., 423 U.S. 1327, 1329, 96 S.Ct. 251, 254, 46 L.Ed.2d 237 (1975) (Blackmun, J., in chambers) our ability to review even a temporary restraint on pure speech is obviously critical. Mandamus does not provide adequate review. It is a prerogative writ discretionary in nature and does not guarantee a remedy. The earlier panel of this Court in this ease denied review and declined to provide any relief against the prior restraint. It did not use mandamus to ensure a hearing on the order not to publish. Mandamus is a slender reed on which to hang one’s hopes to reverse a wrong. It requires an obvious error in which officials or judges grossly exceed their authority, and it is a discretionary writ.

In contrast, permanent injunctions are immediately appealable. The permanent injunction against publication entered on October 3, 1995, fits in this category. The injunction still remains in effect even though another order was entered at the same time making copies of the document available to the public. This is our first experience with such a strange combination of orders. Why enter an injunction against publication of original documents and then allow publication of copies of the documents? Such orders serve no purpose other than to make a statement or declaration of wrongdoing while seeking to prevent review under the mootness doctrine. It is a clever strategem: Now you see it, now you don’t. But appellate courts cannot allow themselves to be done out of their jurisdiction so cleverly. We would abdicate our responsibility of judicial review. So long as the permanent injunction remains technically in effect, we will review it as an injunction just as technically.

Review must be kept alive when a judge issues a prior restraint that he can cease when challenged and then take up again at a later time, only to cease again just in time to prevent appellate review. The doctrine of mootness is not to be used as a spoof on appellate courts. We therefore find that the case is not moot and proceed to consideration of the merits.

B. Prior restraint

(1) The permanent injunction

It has long been established that a prior restraint comes to a court “with a heavy presumption against its constitutional validity.” Bantam Books v. Sullivan, 372 U.S. 58, 70, 83 S.Ct. 631, 639, 9 L.Ed.2d 584 (1963). In this case, the news magazine Business Week obtained information from a confidential source and prepared a story on a matter of public concern. Following standard journalistic protocol, Business Week sought comment from the parties and proceeded to take the story to print. Instead, the magazine received a facsimile transmission from a Federal District Court prohibiting publication of the information and citing “irreparable harm” as the reason. J.A. at 23.

The critical starting point for our analysis, therefore, is that we face the classic case of a prior restraint. Indeed, “[prohibiting the publication of a news story ... is the essence of censorship,” and is allowed only under exceptional circumstances. Providence Journal, 820 F.2d at 1345. Justice Blackmun recently summarized the state of prior restraint doctrine as follows:

Although the prohibition against prior restraints is by no means absolute, the gagging of publication has been considered acceptable only in “exceptional cases.” Even where questions of allegedly urgent national security, or competing constitutional interests, are concerned, we have imposed this “most extraordinary remedy” only where the evil that would result from the reportage is both great and certain and cannot be militated by less intrusive measures.

CBS v. Davis, — U.S. -, -, 114 S.Ct. 912, 914, 127 L.Ed.2d 358 (1994) (Blackmun, J., in chambers) (citations omitted). Thus, we ask whether Business Week’s planned publication of these particular documents posed such a grave threat to a critical government interest or to a constitutional right as to justify the District Court’s three injunctive orders.

Before proceeding to this constitutional inquiry, however, we must clear up the considerable confusion generated by the proceedings below. Not only did the District Court fail to conduct any First Amendment inquiry before granting the two TROs, but it compounded the harm by holding hearings on issues that bore no relation to the right of Business Week to disseminate the information in its possession. Weeks passed with the “gag order” in effect, while the court inquired painstakingly into how Business Week obtained the documents and whether or not its personnel had been aware that they were sealed. While these might be appropriate lines of inquiry for a contempt proceeding or a criminal prosecution, they are not appropriate bases for issuing a prior restraint.

Furthermore, when the District Court did finally identify the potential for a First Amendment problem, it dismissed the question with misplaced reliance on Seattle Times v. Rhinehart, 467 U.S. 20, 104 S.Ct. 2199, 81 L.Ed.2d 17 (1984). Seattle Times holds that parties to civil litigation do not have a right to disseminate information they have gained through participation in the discovery process. That case, however, does not govern the situation where an independent news agency, having gained access to sealed documents, decides to publish them.

In short, at no time — even to the point of entering a permanent injunction after two temporary restraining orders — did the District Court appear to realize that it was engaging in a practice that, under all but the most exceptional circumstances, violates the Constitution: preventing a news organization from publishing information in its possession on a matter of public concern.

We can only conclude that, had the District Court not been rushed to judgment by both parties and had it engaged in the proper constitutional inquiry, the injunction would never have been issued. Far from falling into that “single, extremely narrow class of cases” where publication would be so dangerous to fundamental government interests as to justify a prior restraint, New York Times Co. v. United States, 403 U.S. 713, 726, 91 S.Ct. 2140, 2147-48, 29 L.Ed.2d 822 (1971) (Brennan, J. concurring), the documents in question are standard litigation filings that have now been widely publicized. The private litigants’ interest in protecting their vanity or their commercial self-interest simply does not qualify as grounds for imposing a prior restraint. It is not even grounds for keeping the information under seal, as the District Court ultimately and correctly decided. Opinion and Order Granting Plaintiff’s Motion far Leave to Amend its Complaint, J.A. at 33. The permanent injunction, therefore, was patently invalid and should never have been entered.

(2) The Temporary Restraining Orders

For the same reason, we find that the District Court erred in granting the two temporary restraining orders, but we recognize an added layer of complexity with regard to this issue. The temporary orders raise the question of whether a district court, faced with an emergency petition to enjoin publication of certain information, may grant a TRO simply in order to give the problem due consideration. In other words, can the court preserve the status quo long enough to study the question without offending the First Amendment?

In answering this question, we are guided by the First Circuit’s holding in In the Matter of Providence Journal Company. 820 F.2d 1342, modified on reh’g by 820 F.2d 1354 (1st Cir.1986), cert, granted and dismissed on other grounds. In Providence Journal, the district court had issued a temporary restraining order prohibiting a newspaper from publishing certain information in its possession and had scheduled a hearing for several days later. The First Circuit found that the TRO constituted a “transparently invalid prior restraint on pure speech.”² Id. at 1344. The court recognized that the matter had come before the district court “on an emergency basis” and that “[t]he court was forced to drop its other duties and immediately address this issue.” Id. at 1351. The court further noted that the “district court’s natural instinct was to delay the matter temporarily so that a careful, thoughtful answer could be crafted.” Id. The court concluded:

This approach is proper in most instances, and indeed to follow any other course of action would often be irresponsible. But, absent the most compelling circumstances, when that approach results in a prior restraint on pure speech by the press it is not allowed.

Id.

The Providence Journal court’s approach to the question reveals a fundamental difference between a standard TRO issued under Rule 65 of the Federal Rules of Civil Procedure in a non-speech context and a special injunctive order granting a prior restraint. Although we may refer to the latter as a TRO, it is a different beast in the First Amendment context.

First, as the Providence Journal court noted, the purpose of a TRO under Rule 65 is to preserve the status quo so that a reasoned resolution of a dispute may be had. Where the freedom of the press is concerned, however, the status quo is to “publish news promptly that editors decide to publish. A restraining order disturbs the status quo and impinges on the exercise of editorial discretion.” Providence Journal, 820 F.2d at 1351. Rather than having no effect, “a prior restraint, by ... definition, has an immediate and irreversible sanction.” In re King World Productions, 898 F.2d 56, 60 (6th Cir.1990) (quoting Nebraska Press, 427 U.S. at 559, 96 S.Ct. at 2802-03).

Second, while a TRO may be granted ex parte under certain circumstances laid out in Rule 65, those circumstances are severely limited in the First Amendment context. While “[t]here is a place for ex parte issuance, without notice, of temporary restraining orders of short duration,” there is no place for such orders in the First Amendment realm “where no showing is made that it is impossible to serve or to notify the opposing parties and give them an opportunity to participate.” Carroll, 393 U.S. at 180, 89 S.Ct. at 351. See Providence Journal, 820 F.2d at 1351 (a prior restraint “issued prior to a full and fair hearing ... faces an even heavier presumption of invalidity.”). In addition to guaranteeing the due process rights of the third-party news organization, giving notice and a hearing increases the likelihood that any impingement on First Amendment rights that might follow will be well-founded.

Third, the inquiry that the court must conduct is different. In issuing a TRO, a district court is to review factors such as the party’s likelihood of success on the merits and the threat of irreparable injury. Mason County Medical Ass’n v. Knebel, 563 F.2d 256, 261 (6th Cir.1977). In the case of a prior restraint on pure speech, the hurdle is substantially higher: publication must threaten an interest more fundamental than the First Amendment itself. Indeed, the Supreme Court has never upheld a prior restraint, even faced with the competing interest of national security or the Sixth Amendment right to a fair trial.

For similar reasons, the standard of review is different. The decision to grant or deny an injunction is reviewed for abuse of discretion. Id. We review First Amendment questions de novo.³ Bose Corp. v. Consumers Union of United States, 466 U.S. 485, 104 S.Ct. 1949, 80 L.Ed.2d 502 (1984).

Thus, the prerequisites for emergency, temporary injunctive relief in the First Amendment realm differ dramatically, and appropriately, from the realm of everyday resolution of civil disputes governed by the Federal Rules. And while compliance with the former is required, mere compliance with the latter might have averted the protracted damage to the First Amendment that occurred in this case. Unfortunately, neither were met here. Neither the parties nor the District Court attempted to contact McGraw-Hill before the order was transmitted. The court did not even “define the injury and state why it is irreparable and why the order was granted without notice” as it would be required to do under Rule 65.

C. The Protective Order

Finally, the underlying protective order signed by Judge Rubin bears comment. While District Courts have the discretion to issue protective orders, that discretion is limited by the careful dictates of Fed. R.Civ.P. 26 and “is circumscribed by a long-established legal tradition” which values public access to court proceedings. Brown & Williamson Tobacco Corp. v. FTC, 710 F.2d 1165, 1177 (6th Cir.1983), cert. denied, 465 U.S. 1100, 104 S.Ct. 1595, 80 L.Ed.2d 127 (1984). Rule 26(c) allows the sealing of court papers only “for good cause shown” to the court that the particular documents justify court-imposed secrecy. In this case, the parties were allowed to adjudicate their own case based upon their own self-interest. This is a violation not only of Rule 26(c) but of the principles so painstakingly discussed in Brown & Williamson.

The District Court cannot abdicate its responsibility to oversee the discovery process and to determine whether filings should be made available to the public. It certainly should not turn this function over to the parties, as it did here, allowing them to modify the terms of a court order without even seeking the consent of the court. The protective order in this ease allows the parties to control public access to court papers, and it should be vacated or substantially changed.

III. Conclusion

For the foregoing reasons, we REVERSE and VACATE the challenged orders.

1 . The suit was filed against both Bankers Trust and an affiliate, BT Securities. This opinion will refer to them collectively as "Bankers.”

2 . The court addressed the TRO issue in the context of reversing the newspaper's conviction for criminal contempt. (The newspaper had violated the TRO the day after it was entered.) The First Circuit held that, for the purpose of criminal contempt charges, a newspaper was permitted to challenge such a "transparently invalid" prior restraint by violating it. Providence Journal, 820 F.2d at 1344.

3 . A final difference, at least in this case, is the source of judicial authority for the order. Here, the party subject to the injunction was not already before the court. Rule 65 explicitly states that it "is binding only upon the parties to the action, their officers, agents, servants, employees, attorneys, and upon those persons in active concert or participation with them." In this case, the District Court’s authority came, presumably, from the All Writs Act, which gives the court power to "issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” 28 U.S.C § 1651.