Sunbeam Products, Inc. v. American Medical Association -97 C 6313-
Oral Ruling- November 3,1998

Sunbeam Products sued the American Medical Association (AMA) for breach of agreement. To effectuate discovery, the parties stipulated to a protective order under Fed. R. Civ. P. 26(c), which allows a party to designate documents "confidential," not to be used or dissexiiinated for purposes outside the_lawsuit. The case has been settled and dismissed with prejudice. The court has jurisdiction by virtue of the protective order, which provides that after "final termination of this action... the Court shall retain jurisdiction to resolve any dispute concerning the use of information disclosed hereunder." Prot. Order I 2. The Association of American Physicians & Surgeons, Inc. (AAPS) now moves for leave to intervene, to rescind tile protective order, and for the court to enjoin the destruction of discovery materials.

AAPS seeks to intervene under Fed. R. Civ. P.24(b), and neither AMA nor Sunbeam object to intervention pursuant to this Rule. The court finds Rule 24(b) allows intervention to challenge a protective order, and grants intervenor status to AAPS. Cf. Pansy v. Borough of Stroudsburg. 23 F.3d 772, 778 (3d Cir. 1994) (collecting cases).

As to the protective order, AAPS and AMA disagree about who carries the initial burden. According to AAPS, a finding of "good cause" is a prerequisite for entry of a protective order under Rule 26(c). Because the protective order in this case was based on stipulation by the parties, the AMA never showed, and the court never found, good cause. Therefore, AAPS argues, AMA must make this showing in order to demonstrate the legitimacy of the protective order. Otherwise, AAPS contends, the protective order cannot stand, and must be rescinded. "Absent a protective order, parties to a law suit may disseminate materials obtained during discovery as they see fit." Jepson Inc. v. Makita Electric Works. Ltd., 30 F.3d 854, 858 (7th Cir. 1994).

AMA counters that AAPS has "confused the standard for the initial entry of a protective order with the standard for revocation of an already existing order." Surreply at 3. AMA asserts that a non-party litigant challenging a protective order has the burden to show "abuse or impropriety." The mle, as AMA reads it, is "that the settled expectations of the parties regarding how their confidential documents will be treated by one another should not be disrupted by an interloper absent a compelling showing." Surreply at 4. According to AMA, none of AAPS's justifications for rescission are sufficiently compelling, and AAPS's motion should be denied.

In short, the question is whether the good cause test still applies where the parties stipulated to a protective order, and both parties have conducted discovery under the order. AAPS has the better of the two arguments. AMA relies on cases in which the original grounds for the protective order were nof at issue. See Grove Fresh Distributors. Inc. v. Everfresh Juice Co., 24 F.3d 893 (7th Cir. 1994); AT&T v. Grady. 594 F.2d 594(7th Cir. 1978). In Grove Fresh, a media group sought to modify a protective order, and the district court held it did not have standing to do so; the court of appeals reversed. Neither the district nor the appellate court examined the propriety of the initial entry of the protective order, but only whether circumstances existed that justified modification. See 24 F.3d at 898; Grove Fresh Distributors. Inc. v. Everfresh Juice Co., No. 89 C 1113, 1992 WL 350724, at *1 (N.D. Ill. Nov. 24, 1992). Likewise, Gradv did not involve the validity of the protective order, but whether "exceptional considerations" warranted its later modification. 594 F.2d at 597. Therefore, Grady and Grove Fresh are not persuasive, as they both deal with the threshold for modi?ying a protective order, not whether a court can deny protection under Rule 26(c), particularly in the absence of a showing of good cause.

AAPS seeks rescission, not modification, of the order because it lacked the prerequisite good cause showing. AMA and Sunbeam agreed on the protective order, AMA was never required to show good cause, and therefore no finding of good cause preceded entry of the protective order. AMA cites no case, nor has the court found one, which holds that a stipulated protective order is presumptively valid where the court did not find good cause before entering the order. Rather, decisions in this circuit and others indicate that, when confronted with a third party challenge to the order, it is proper for the court to conduct something of a post hoc inquiry as to whether good cause exists to justify the protective order, even if the parties agreed to the order. See Jepson, 30 F.3d at 858; Pansy, 23 F.3d at 786. Consequently, AMA is incorrect in urging the court to look at AAPS's rationales for access to the discovery. The court must first determine whether the protective order was proper-i.e. supported by good cause-from the outset.

AMA must demonstrate good cause for the protective order, since it is the party seeking protection under the order. Pansy, 23 F.3d at 786-87. AMA provides two justifications for the protective order. First, AMA claims that it produced sensitive documents "relating to is potential and actual commercial relationships with other companies, including business plans, internal financial analyses, and confidential contractual arrangements." Memo in Opposition at 3. Second, AMA points out that it relied on the protective order, and, per Grady, "where a protective order is agreed to by the parties before its presentation to the court, there is a higher burden on the movant to justify the modification of the order." 594 F.2d at 597.

The first rationale is unavailing, at least without further elaboration. "[A]llegations of harm unsubstantiated by specific reasoning" are insufficient. Cippollone v. Liggett Group, Inc., 785 F.2d 1108, 1121 (3d Cir. 1986). In particular, a claim of confidential business information requires proof that "disclosure will result in a clearly defined and very serious injury" to the business. Andrew Corp v. Rossi, 180 F.R.D. 338, 341 (N.D. Ill. 1998) (quotes omitted). AMA's allegations do not meet this standard. AMA's second justification, however, is more persuasive. The court is not unmindful that AMA based its decisions on what to produce, and what discovery requests to challenge on relevance grounds, on an assumption that the protective order was valid. Even AAPS concedes that some documents might contain "legitimate trade secrets," and warrant protection.

In light of these considerations, the court will rescind the protective order, but will stay the order of rescission for two weeks. During that time, AMA may move for a new separate protective order, as contemplated in paragraph 10 of the current protective order. This motion, if AMA chooses to file it, must identify specific documents, and clearly de{fine the injury AMA would suffer if those documents were disclosed. Should AMA submit such a motion, the court will set a briefing schedule to enable Sunbeam and AAPS to respond.

Finally, concerning AAPS's request for an injunction, such relief is not called for under these circumstances. AMA has stated that it is aware of its general obligation not to destroy evidence, that copies of all its discovery are in storage, and that it has no plans to destroy these materials. The court finds these good faith representations to be sufficient assurance that AMA will not destroy any documents, and consequently holds that a document preservation injunction is not necessary.

In conclusion, AAPS's motion to intervene is granted, its motion to rescind the protective order is granted and stayed for two weeks, and its motion for an injunction is denied.