When Protective Orders Are Not Enough – Keeping Clients’ Confidential Information Out Of The Public Record

In the world of commercial litigation there is an unavoidable complication that often arises during disputes: how to handle sensitive and proprietary information. When parties to business-centered disputes resort to litigation to solve their dispute, the information that is exchanged between the parties often includes sensitive financial material, such as documents, reports, trade secrets, employee information and tax records. In fact, Michigan state courts have long followed a tradition of liberal and open discovery which requires the exchange of sensitive and private information during the discovery process.

Litigators and institutional clients are familiar with protective orders that place restrictions on this exchange during discovery. These orders typically limit dissemination of the materials to the parties, their attorneys and the court. In fact, the parties and the courts routinely enter such protective orders by stipulation without the need for a motion or hearing.

But what litigators and parties may not appreciate is that protective orders only govern the exchange of information during the discovery process; a separate order is required to seal any records that are filed with the court. Thus, despite its name, a protective order does not entirely shield documents from public disclosure because documents which are filed with the court in support of or in opposition to motions that parties make in a case, are open to public inspection. Moreover, while a protective order may state that certain confidential records must be filed under seal, that order is not legally binding and the court cannot lawfully seal those records. Instead, a party must file a separate motion which must demonstrate that the court has considered the interests of the parties involved and the interests of the general public in having the records sealed. Michigan law requires that a party file a motion for an order sealing the record; conduct a hearing on that motion and only then can a court order – upon a finding of certain facts – that the record be sealed. The court cannot make such an order without a motion or hearing; or on a stipulation of facts by the parties.

This issue arises from the gap between two different Michigan Court Rules: MCR 2.302(C) and MCR 8.119(I). MCR 2.302 governs discovery and section (C) authorizes the issuance of protective orders for information exchanged through discovery. The rule does not, however, mention anything about sealing records or how documents provided under a protective order are presented to the court. Attorneys and parties who assume that this rule gives their information any protection outside of discovery are mistaken. Instead, parties and attorneys must look to MCR 8.119, which deals with administrative rules of the court. Under section (I) of this rule, a court may enter an order that seals court records . MCR 8.119 specifically provides that an order may not be entered unless “a party has filed a written motion that identifies the specific interest to be protected.” The court must then conduct a hearing – with notice to the public – and consider and make factual findings on whether good cause exists to support sealing the records, with a particular finding that no less restricted means exist other than sealing the records.

Protective orders, just by the virtue of their name, might seem to offer enough security for those involved in commercial litigation to have their confidential and proprietary information shielded from public disclosure. However, without close attention to the proper court rules, documents exchanged confidentially under a “protective order” may offer clients little protection when attached to a filing in the public record.

If you have any questions relating to complex litigation feel free to contact Stephen McKenney at smckenney@nagmlaw.com.