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GKC Strategic Value Master Fund, LP v. Baker Hughes Inc.

Court of Chancery of Delaware

June 25, 2019

GKC STRATEGIC VALUE MASTER FUND, LP F/K/A GKC APPRAISAL RIGHTS MASTER FUND, LP AND WALLEYE TRADING LLC, Petitioners,
v.
BAKER HUGHES INCORPORATED, Respondent.

          Submitted: March 20, 2019

          Ned Weinberger and Thomas Curry, of LABATON SUCHAROW LLP, Wilmington, Delaware; OF COUNSEL: Eric J. Belfi, Ira A. Schochet, and David J. Schwartz, of LABATON SUCHAROW LLP, New York, New York, Attorneys for Petitioners.

          Kevin M. Coen and Sabrina M. Hendershot, of MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Arthur F. Golden, Andrew Ditchfield, and Andrew S. Gehring, of DAVIS POLK & WARDWELL LLP, New York, New York, Attorneys for Respondent.

          John D. Hendershot and Susan M. Hannigan, of RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; OF COUNSEL: Paula Anderson and Alan Goudiss, of SHEARMAN & STERLING LLP, New York, New York, Attorneys for Third-Party General Electric Company.

          Mark Lebovitch, of BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP, New York, New York, Attorney for Non-Party Tri-State Joint Fund.

          MEMORANDUM OPINION

          GLASSCOCK, Vice Chancellor.

         I have noted in a past decision[1] the disturbingly convincing frequency fallacy known rather jocularly as the Baader-Meinhof phenomenon. That fallacy represents the perception that, once something first comes to our attention, references to that thing appear with surprising regularity thereafter. The fallacy, of course, results not from increased frequency of the references, but from our newly-created aptitude, once aware, to pick those references out of the background noise of life. One should, therefore, not ascribe much significance to the phenomenon. Nonetheless, when as a judge I am called on to deliver multiple opinions on a formerly-dormant issue in a short period of time, I find it hard not to conclude that issue is generally of increasing relevance outside of my own docket.

         Such an issue is presented in this Memorandum Opinion. The matter is before me on a challenge to the confidential treatment of pleadings and exhibits to those pleadings, filed in a settled-and-closed-now reopened-appraisal action. The exhibits, as is permitted by rule, [2] were filed confidentiality. The challenge, also by rule, [3] resulted in a duty on the original filer of the exhibits to submit, within ten days, a public version of the documents, redacting only those parts that the original filer and interested parties believe in good faith are subject to the narrow exception to the rule that proceedings in this Court are open to public scrutiny.[4] Here, the parties seeking continued confidentiality-Baker Hughes, a GE Company LLC ("BHGE") and Third-Party General Electric Company ("GE") (together, the Respondents)- filed what amounts to a parody of public versions of the exhibits; documents that are pied displays of blackened rectangles against a white background, entirely unintelligible to the "reader."

         The Respondents argue that, because Non-Party Tri-State Joint Fund ("Tri-State Fund" or the "Challenger") has a litigation purpose instead of a "public interest"-whatever that may be-in the documents, Rule 5.1 is essentially inapplicable. Therefore, they have forgone the opportunity to file public versions containing good faith redactions under the Rule. This is a litigation tactic that the Respondents have chosen to pursue. I am sure, and nothing in this Memorandum Opinion should be read to the contrary, that the Respondents pursued this tactic in good faith; however, the choice of such a tactic has consequences. Because I determine that, under Rule 5.1, the particular reason for the challenge is irrelevant to the Respondents' duty to produce a public version, it is clear to me that the Respondents are not in compliance with Rule 5.1.

         I note that the Respondents propose that, if (as is the case) I find Rule 5.1 applicable, they should be given a second chance to file public versions of the documents containing only good faith redactions. Rule 5.1, however, requires that precise thing to have been done within ten days. The Respondents could have-but did not-seek relief from the time requirement, citing, for instance, the amount of material subject to review. Instead, the Respondents chose to attempt to keep the documents entirely from public view, despite the prior submission of the documents to the Court for review in connection with a request for judicial action. That, I find, is not contemplated by Rule 5.1. Having chosen the litigation road by which they hoped to preserve complete confidentiality, the Respondents cannot turn back; they have passed the fork that led to compliant redacted public versions of the documents at issue.

         Rule 5.1 was created to accommodate a minor exception to a truism, that in a free and democratic society courts must conduct their business in the open, subject always to scrutiny by the public that these courts serve.[5] In very limited situations, pleadings and exhibits thereto contain information so personal to a party, and of such tangential public interest, that the information should be withheld in the interest of justice. In such a situation, it would be a denial of justice to put the party to the Morton's Fork of withholding confidential material from the Court-thereby forgoing justice upon a complete record-or ceding their legitimate privacy interests via a public filing. Rule 5.1 accommodates those rare instances by setting forth a procedure whereby the party interested in confidentiality may designate such matters, in which case this Court conducts a balance of the public and private interests, with a tie going to disclosure. Where litigants fail to comply with the strictures of Rule 5.1, the default-litigation in the public view-obtains.

         The Respondents have failed to comply with Rule 5.1. As a result, the exhibits in contention here shall be made available to the public. This renders the issue of the continued redactions in the motions at issue moot, since they preserve only the confidentiality of information available in the exhibits. Therefore, unredacted versions of those pleadings shall be made available to the public as well. To the extent the exhibits contain privileged, as opposed to allegedly confidential, information, the confidential versions originally filed with the Court already contain appropriate redactions, and those shall continue in the public versions. To the extent the Respondents' concern is that the information disclosed may lead-as the Challenger hopes-to a viable plenary action against the Respondents, avoidance of that consequence is not a legitimate aim of the confidentiality regime set out in Rule 5.1.

         Finally, I note that the Respondents argue that allowing exhibits to pleadings to be subject to the challenge sought here will lead to the wholesale conversion of Rule 5.1 into a discovery tool, in contravention of what they characterize as its narrow purpose: promotion of public access. Worse, according to Respondents, is the fact that they are the victims here of a growing pernicious practice of plaintiffs filing sensitive but non-pertinent exhibits, with the idea that they may later be made public. Respondents note that it was the Petitioners in the appraisal action, and not the Respondents, who filed the exhibits. They maintain that these exhibits were of peripheral relevance to three motions, only one of which was decided by the Court before settlement, and thus are of little interest to the public overseeing proceedings in this forum.

         In my view, the Respondents understanding of the purpose of Rule 5.1 is misplaced: the purpose of Rule 5.1 is not to provide public access; it is to allow a limited exception to universal public access.[6] I agree that the documents here are of relatively low public interest, at least insofar as that interest relates to monitoring of the judicial function. That would be an appropriate matter for the weighing of interests with which the Court is charged under Rule 5.1, in which any gamesmanship anticipated by the Respondents can be taken into the balance. I do not, however, address this weighing here because of the Respondents' failure to comply with the predicate duty under Rule 5.1 to file a public version upon challenge, redacting only material judged in good faith to require confidentiality. My reasoning follows.

         I. BACKGROUND

         A. The Challenge to Confidential Treatment

         On November 21, 2018, this Court received a letter from Tri-State Fund, through its New York counsel, challenging the confidential treatment of filings and exhibits in this case.[7] This case had been closed months earlier after I granted the parties' Stipulation and Proposed Order of Dismissal on July 20, 2018.[8] The underlying litigation involved an appraisal action, which followed the business combination of Baker Hughes Incorporated ("BHI") with General Electric Company's Oil & Gas Business ("GE O&G").[9] BHI was subsequently converted into a new Delaware limited liability company, BHGE.[10] The appraisal action ended in a settlement between the appraisal Petitioners (the "Petitioners") and BHI.[11] Tri-State Fund was purportedly a stockholder of BHI at the time of BHI's business combination.[12] By its own admission, Tri-State Fund seeks to investigate, through its challenge to the confidential treatment of filings and exhibits here, that business combination for potential fraud.[13]

         B. Court of Chancery Rule 5.1 and the Response to the Challenge

         In response to Tri-State Fund's November 21, 2019 challenge to confidential treatment, BHGE, as the successor to BHI, and Third-Party GE have filed Motions for Continued Confidential Treatment of all the redacted filings and of all the exhibits filed under seal.[14] BHGE and GE contend that Tri-State Fund's private purpose to enhance its litigation interest is improper and therefore fatal to Tri-State Fund's success on a Court of Chancery Rule 5.1(f) challenge to confidential treatment.[15] The sealed information for which GE and BHGE wish to preserve confidentiality falls into two categories, each governed by a different subsection of Rule 5.1(f).

         Rule 5.1(f)(1) governs confidential filings for which Rule 5.1(d) did not require the filing of a public version, [16] such as (and pertinent here) exhibits.[17] Once challenged, the original filer of the confidential filing, after providing notice and opportunity for others to designate information as confidential, must file a public version of the confidential filing within ten days of the filing of the challenger's notice.[18] Once the public filing is available, the confidential treatment of information within the public filing may be challenged.[19] On December 6, 2018, GE and BHGE both filed Motions for the Continued Confidential Treatment of the following exhibits (which constitute all the exhibits filed under seal in this case) previously filed under seal (the "Sealed Exhibits"):[20] (1) Exhibits 11, 13, and 14 to Petitioners' April 13, 2018 Reply in Further Support of Their Motion to Compel Production of Documents and Responses to Interrogatories;[21] (2) Exhibits B, C, D, G, H, I, and J to Petitioners' May 1, 2018 Letter Memorandum in Support of Motion to Compel;[22] (3) Exhibits 1-4 to Petitioners' May 7, 2018 Reply Letter Memorandum in Support of Motion to Compel;[23] and (4) Exhibits A-G to Petitioners' July 6, 2018 Motion to Enforce the Court's May 8, 2018 Order Compelling Production of Documents.[24] In response to the Challenger's notice, BHGE and GE filed purported "public" versions of the Sealed Exhibits within the time required by Rule 5.1(f)(1), on December 6, 2018.[25] These public versions are entirely obscured.[26]

         Rule 5.1(f)(2) governs confidential filings for which a public version is already accessible.[27] In that case, "any person may seek continued Confidential Treatment of the Confidential Information redacted from the public version by filing a motion within five days after the filing of a challenger's notice."[28] The filing of a motion for continued confidential treatment "constitutes a certification that the signer of the motion personally reviewed the Confidential Filing and that continued Confidential Treatment is appropriate."[29] On November 29, 2018, GE and BHGE separately filed for the continued confidential treatment of the redactions made to public versions of three confidentially filed documents (the "Redacted Filings"):[30](1) Petitioners' April 13, 2018 Reply in Further Support of Their Motion to Compel Production of Documents and Responses to Interrogatories;[31] (2) BHI's May 4, 2018 Letter Memorandum in Response to Petitioners' Motion to Compel;[32] and (3) Petitioners' July 6, 2018 Motion to Enforce the Court's May 8, 2019 Order Compelling Production of Documents.[33]

         The Redacted Filings and the Sealed Exhibits relate to one of three motions, all filed by the Petitioners in the appraisal action. On March 8, 2018, the Petitioners filed a Motion to Compel Production of Documents and Responses to Interrogatories (the "Motion to Compel").[34] The Motion to Compel was fully briefed, and I heard Oral Argument by telephone on March 18, 2018. I did not, however, decide the Motion to Compel at that point; instead, the parties engaged in a meet-and-confer after the Oral Argument and resolved the majority, but not all, of their disputes.[35]On May 1, 2018, the Petitioners then submitted a Letter Memorandum in Support of the Motion to Compel which addressed the disputes detailed in the Motion to Compel that had not been resolved during the meet-and-confer (the "Further Motion to Compel").[36] BHI replied by letter memorandum[37] and the Petitioners submitted a letter memorandum in further support.[38] I heard Oral Argument by telephone on May 8, 2018. In a Bench Decision, I largely ordered production with respect to the documents at issue, with certain caveats.[39] On July 6, 2019, the Petitioners filed a Motion to Enforce the Court's May 8, 2018 Order Compelling Production of Documents (the "Motion to Enforce").[40] On the same day, the Petitioners filed a Notice of Challenge to Confidential Treatment of the exhibits they had filed confidentially in conjunction with their Motion to Enforce.[41] On July 13, 2018, the Petitioners withdrew their Motion to Enforce and their Notice of Challenge- presumably in light of settlement negotiations.[42] As a result, I did not decide the Motion to Enforce or the Challenge to Confidential Treatment. On July 18, 2018, as mentioned, the parties submitted a Stipulation and Proposed Order of Dismissal, which I granted.

         Pursuant to Rule 5.1(f), Tri-State Fund filed oppositions to GE's and BHGE's Motions for Continued Confidential Treatment.[43] I heard Oral Argument on the Motions by telephone on February 28, 2019. I also received supplemental letters on March 15, 2019 and March 20, 2019, [44] after which I considered the matter submitted for decision.

         II. ANALYSIS

         Tri-State Fund has been forthcoming with regard to its private purpose for challenging confidential treatment. Nonetheless, its motivation is irrelevant to whether Rule 5.1 applies. Court of Chancery Rule 5.1(f) is clear, "[a]ny person may challenge the Confidential Treatment of a Confidential Filing . . . ."[45] After such challenge, information designated confidential may be maintained as confidential where "good cause" exists.[46] Good cause "shall exist 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."[47] Rule 5.1 therefore requires a balancing test between the public interest in disclosure and the private harm caused by disclosing that small of amount of information designated confidential.[48] The private interest, if any, of the particular party challenging the confidential treatment of information may, perhaps, have some weight in the court's ultimate balance, but elucidation by the challenger of a "proper" or "public" purpose is not a predicate to the operation of Rule 5.1.

         Open litigation is the default in the Court of Chancery.[49] Confidentiality is the exception, and not the rule. To come under that exception, the parties must punctiliously and faithfully comply with Rule 5.1.[50]

         Rule 5.1 did not require the parties to file public versions of the Sealed Exhibits at the time of original filing-that is, at the time the three motions referenced above were briefed with attached exhibits.[51] Once confidential treatment of the Sealed Exhibits was challenged, however, the original filer had an obligation to file public versions, which also incorporate the designation, if any, of confidential information by the other parties to the action who had previously designated confidential information in the confidential filing.[52] As an initial matter, all the Sealed Exhibits were originally filed by the Petitioners in the underlying appraisal action, and therefore those Petitioners had the obligation to file public versions.[53]The Petitioners also had the obligation to provide notice and opportunity to designate confidential information to "each attorney who has entered an appearance for each person who designated Confidential Information in the Confidential Filing;"[54] here, that would be attorneys representing BHGE.[55] Instead, it was BHGE itself (and Third-Party GE) that filed the purported public versions of the Sealed Exhibits.

         In any event, the public versions of the Sealed Exhibits submitted by GE and BHGE on December 6, 2019 suffer from a fundamental flaw. The public versions do not contain redactions of material that the Respondents consider, in good faith, to be subject to continued treatment as confidential under Rule 5.1. Instead, the exhibits are entirely blacked out; not a single word is legible. Such redaction is presumptively not in good faith compliance with Rule 5.1. GE and BHGE acknowledged that they filed public versions that "have been redacted in their entirety."[56] According to BHGE, it did so because Tri-State Fund's purpose was "self-serving, private, and unrelated to the function served by Rule 5.1."[57] GE and BHGE further requested an "opportunity to promptly file alternative public versions of the exhibits with redactions targeted at sensitive, non-public information," if I denied their Motions for Continued Confidential Treatment of the Sealed Exhibits.[58]

         As I mentioned above, Tri-State Fund's motivation is immaterial to BHGE's duty to designate confidential information under Rule 5.1, and to ensure that the redacted public document reflects only these confidentiality interests. Accordingly, I do not reach the balancing test prescribed by Rule 5.1 because BHGE (and GE) have failed to comply with the predicate requirements. As Rule 5.1 states, "the designation of material as Confidential Information constitutes a certification that the designating lawyer, party or person has reviewed the Document and believes that good cause exists for Confidential Treatment."[59] Not only are wholesale redactions facially suspect in this regard, but by GE's and BHGE's own admissions the entirely redacted public versions are not in compliance with Rule 5.1 because they have not redacted only "sensitive, non-public information, "[60] but rather concealed everything. I note that a cursory review of the documents satisfies me that much of the material therein-which the Respondents have kept from the public-is in no way eligible for confidentiality under Rule 5.1. Therefore, I find, GE and BHGE have failed to timely file public versions of the Sealed Exhibits as required by Rule 5.1(f)(1). As a result, the Sealed Exhibits shall be made public in their ...


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