Product Madnes,s Inc. v. Brooke Kingston ( 2024 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
MORGAN T. ZURN LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
May 14, 2024
Ryan D. Stottmann, Esquire Robert J. Kriner, Jr., Esquire
Morris, Nichols, Arsht & Tunnell LLP Chimicles, Schwartz Kriner & Donaldson-Smith LLP
1201 N. Market Street 2711 Centerville Road, Suite 201
Wilmington, DE 19801 Wilmington, Delaware 19808
RE: Product Madness, Inc. v. Brooke Kingston,
Civil Action No. 2024-0040-MTZ
Dear Counsel:
Plaintiff Product Madness, Inc. and defendant Brooke Kingston were
counterparties to an arbitration proceeding. Product Madness prevailed, and this
Court has since confirmed the arbitration award. The parties now dispute whether
portions of Product Madness’s complaint in this action and exhibits thereto are
confidential under Court of Chancery Rule 5.1. For the reasons below, I conclude
they are not.
I. Background
Product Madness “operates a portfolio of digital entertainment products and
services, including mobile applications . . . and web-based games.”1 Kingston was
a user of one or more of Product Madness’s mobile applications. Product Madness
1
D.I. 1 at Compl. to Confirm / Vacate Arb. Award ¶ 5 [hereinafter “Compl.”].
Product Madness, Inc. v. Kingston,
C.A. No. 2024-0040-MTZ
May 14, 2024
Page 2 of 9
and Kingston were bound by Product Madness’s terms of service (the “TOS”).2
The TOS included a mandatory arbitration provision.3 That provision also required
the parties to maintain the confidentiality of any arbitration proceeding brought
under the TOS:
You and [Product Madness] shall maintain the confidential nature of
the arbitration proceedings and the arbitration award, including the
arbitration hearing, except as may be necessary to prepare for or
conduct the arbitration hearing on the merits, or except as may be
necessary in connection with a court application for a preliminary
hearing, a judicial challenge to an award or its enforcement, or unless
otherwise required by law or judicial decision.4
Kingston initiated an arbitration proceeding against Product Madness in
accordance with the TOS. Product Madness prevailed, with the arbitrator
dismissing Kingston’s claims.5 Product Madness filed a complaint in this Court
seeking confirmation of the arbitration award.6 The parties stipulated to
confirmation,7 and the Court granted that stipulation.8
2
Compl., Ex. B. Kingston cites a different version of the TOS in her motion. D.I. 11 at
Mot., Ex. B. The conclusions set forth in this letter are the same regardless of the version
I proceed under.
3
Compl., Ex. B § 13.
4
Id.
5
Compl., Ex. A at 6–14.
6
Compl.
7
D.I. 9.
Product Madness, Inc. v. Kingston,
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May 14, 2024
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Product Madness’s complaint attached as exhibits the arbitration award, the
TOS, and Kingston’s arbitration demand.9 It filed the complaint and exhibits under
seal in accordance with Court of Chancery Rule 5.1.
Product Madness later filed public versions of the complaint and exhibits.10
Product Madness designated no material as confidential; Kingston designated as
confidential all material in the complaint reflecting the substance of the arbitration
demand and proceedings as well as nearly the entirety of the arbitration demand
and award. All material Kingston designated was redacted from the public
versions. Product Madness filed a notice of challenge to confidential treatment
under Rule 5.1,11 and Kingston responded with a motion for continued confidential
treatment.12 Product Madness opposed the motion.13
In Kingston’s view, Product Madness filed this action to circumvent the
TOS (and in doing so breached the TOS). In Product Madness’s view, Kingston
knows none of the redacted information is confidential but seeks continued
8
D.I. 10.
9
Compl., Exs. A–C.
10
D.I. 4.
11
D.I. 6.
12
D.I. 11 at Mot.
13
D.I. 16 at Opp.
Product Madness, Inc. v. Kingston,
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May 14, 2024
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confidential treatment of the arbitration award because she intends to continue to
file similar arbitration actions in the hopes of obtaining a favorable result to tee up
a follow-on class action lawsuit. In other words, each party accuses the other of
gamesmanship.
II. Analysis
“All court proceedings are presumptively open to the public,” and that
presumption extends to court filings.14 The right of access enables the public to
“judge the product of the courts in a given case.”15 This, in turn, “helps ensure
‘quality, honesty and respect for our legal system.’”16 Court of Chancery Rule 5.1
“reflects the Court of Chancery’s commitment to these principles.”17 It states that,
“[e]xcept as otherwise provided” in the rule, “proceedings in a civil action are a
14
In re Nat’l City Corp. S’holders Litig., 2009 WL 1653536, at *1 (Del. Ch.
June 5, 2009).
15
In re Oxbow Carbon LLC Unitholder Litig., 2016 WL 7323443, at *2 (Del. Ch.
Dec. 15, 2016) (ORDER) (internal quotation marks omitted) (quoting Va. Dept. of State
Police v. Wash. Post, 386 F.3d 567, 575 (4th Cir. 2004)).
16
Horres v. Chick-fil-A, Inc., 2013 WL 1223605, at *1 (Del. Ch. Mar. 27, 2013) (quoting
In re Cont’l Ill. Sec. Litig., 732 F.2d 1302, 1308 (7th Cir. 1984)).
17
Id. at *2.
Product Madness, Inc. v. Kingston,
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matter of public record.”18 This language “makes clear that most information
presented to the Court should be made available to the public.”19
Under Rule 5.1, information may be “filed confidentially and not available
for public access” where good cause is shown.20 “The party or person seeking to
obtain or maintain Confidential Treatment always bears the burden of establishing
good cause for Confidential Treatment.”21 Good cause 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.”22 In considering
whether good cause exists, the Court first asks whether the information is sensitive
and non-public; if it is, the Court balances the harm of disclosing that information
against the public interest in access to court proceedings.23 Arbitration proceedings
18
Ct. Ch. R. 5.1(a).
19
Sequoia Presidential Yacht Gp. LLC. v. FE P’rs LLC, 2013 WL 3724946, at *2 (Del.
Ch. July 15, 2013) (emphasis omitted) (citation omitted) (internal quotation marks
omitted).
20
Ct. Ch. R. 5.1(b).
21
Id. R. 5.1(b)(3).
22
Id. R. 5.1(b)(2).
23
Id. (describing the requirements for showing “good cause”); see Soligenix, Inc. v.
Emergent Prod. Dev. Gaithersburg, Inc., 289 A.3d 667, 676–77 (Del. Ch. 2023)
(“Information is not entitled to confidential treatment merely because it is not publicly
available. The non-public information must be ‘sensitive’ and the party must identify the
specific information worthy of confidential treatment.” (citation omitted)); Al Jazeera
Product Madness, Inc. v. Kingston,
C.A. No. 2024-0040-MTZ
May 14, 2024
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are not inherently confidential, and a party seeking to maintain the confidentiality
of documents relating to such a proceeding must independently satisfy Rule 5.1’s
requirements.24
A. Kingston’s Failed To Establish Good Cause By Relying
Only On The TOS.
Kingston argues that the TOS’s language requiring the parties to maintain
the arbitration’s confidentiality renders the information “sensitive” within the
meaning of Rule 5.1. Our courts have “repeatedly rejected” the argument that
parties can satisfy the requirement that information be sensitive by contract.25
Am., LLC v. AT & T Servs., Inc., 2013 WL 5614284, at *5 (Del. Ch. Oct. 14, 2013)
(“Rule 5.1 does not envision a scenario where information in court documents, such as
the nature of the dispute, is kept confidential merely because disclosure has the potential
for collateral economic consequences.”); 1 Donald J. Wolfe, Jr. & Michael A. Pittenger,
Corporate and Commercial Practice in the Delaware Court of Chancery § 4.02 at 4-7 to
-8 (2d ed. Dec. 2023 update) (“The modifier ‘sensitive’ makes clear that information does
not qualify for Confidential Treatment merely because it is non-public or potentially
embarrassing.”).
24
Soligenix, 289 A.3d at 672 (“[I]f parties to an arbitration desire confidentiality, they
must do so by contract. But even then, as discussed below, once the parties bring their
dispute to court, their agreement does not control these proceedings.”).
25
Id. at 674–75 (collecting cases); Al Jazeera Am., 2013 WL 5614284, at *3 (“[A]
confidentiality provision, even when carefully negotiated, cannot form the basis for this
Court to treat contractual provisions as confidential under Rule 5.1, assuming that the
Rule itself does not provide such a basis.”); see Kronenberg v. Katz, 872 A.2d 568, 608
(Del. Ch. 2004) (“The problem that Katz and EnterSport face is that a court, such as this
one, cannot indulge the desire of private parties to be self-created ‘secret citizens’ who
can litigate in courts of public record behind a judicially enforced screen.”).
Product Madness, Inc. v. Kingston,
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May 14, 2024
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Indeed, that parties cannot contract into Rule 5.1 confidentiality is “well settled.”26
Kingston’s argument fails, and she makes no other argument that the redacted
information is sensitive and non-public under Rule 5.1 such that the good cause
standard is not met.
B. Kingston’s Remaining Arguments Fail.
Kingston makes two other arguments. The first is that it would be a good
public policy to enforce contractual confidentiality provisions in connection with
uncontested proceedings to confirm arbitration awards. Others have made the
same suggestion.27 But Rule 5.1 is clear that “[e]xcept as otherwise provided in
th[e] Rule, proceedings in a civil action are a matter of public record.”28 As
explained, Kingston failed to demonstrate the redacted information falls within one
26
Polychain Capital LP v. Pantera Venture Fund II LP, 2021 WL 5910079, at *5 (Del.
Ch. Dec. 10, 2021) (“The arbitrator’s reasoning is sound as to this issue, but it is not
necessary for my disposition of this motion. It is well settled that parties cannot subvert
Rule 5.1 by contract.”).
27
See Mitch Zamoff, Safeguarding Confidential Arbitration Awards in Uncontested
Confirmation Actions, 59 Am. Bus. L.J. 505, 542–58 (2022) (discussing the advantages
of a general rule that “allows the sealing of confidential arbitration awards in uncontested
confirmation actions” where parties contracted to do so); see also Soligenix, 289 A.3d at
673 n.10. But see Del. Coal. for Open Gov’t, Inc. v. Strine, 733 F.3d 510 (3d Cir. 2013)
(concluding a mechanism for confidential government-sponsored arbitrations before this
Court violated the First Amendment to the United States Constitution), cert. denied, 572
U.S. 1029 (2014).
28
Ct. Ch. R. 5.1(a).
Product Madness, Inc. v. Kingston,
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May 14, 2024
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of Rule 5.1’s exceptions. I simply cannot maintain Rule 5.1 confidentiality under
these circumstances.
The second is that Product Madness should be estopped from challenging
the TOS’s confidentiality provision’s enforceability because “Product Madness
successfully argued in the Arbitration that the TOS was an enforceable contract.”29
“The two requirements of judicial estoppel are that a litigant advances ‘an
argument that contradicts a position previously taken by that same litigant, and that
the Court was persuaded to accept [that argument] as the basis for its ruling.’”30
“Judicial estoppel is a discretionary equitable remedy meant to protect the integrity
of the judicial process.”31
Product Madness has not contradicted its earlier position that the TOS is an
enforceable agreement. Whether Kingston’s designations are confidential under
Rule 5.1 has nothing to do with whether the TOS is enforceable.
Kingston’s motion is DENIED. The Register in Chancery shall unseal the
complaint and exhibits thereto.
29
D.I. 11 at Mot. ¶ 22.
30
La Grange Communities, LLC v. Cornell Glasgow, LLC, 74 A.3d 653 (Del. 2013)
(quoting Siegman v. Palomar Med. Techs., Inc., 1998 WL 409352, at *3 (Del. Ch.
July 13, 1998)).
Product Madness, Inc. v. Kingston,
C.A. No. 2024-0040-MTZ
May 14, 2024
Page 9 of 9
Sincerely,
/s/ Morgan T. Zurn
Vice Chancellor
MTZ/ms
cc: All Counsel of Record, via File & ServeXpress
31
Darden v. New Castle Motors, Inc., 2014 WL 1392969, at *1 (Del. Super.
Mar. 27, 2014), aff’d, 103 A.3d 515 (Del. 2014).