May 11, 2020 / 6:03 PM / 16 days ago

Does COVID-19 suspend Chancery Court’s public filing requirement?

(Reuters) - A dispute in Delaware Chancery Court between board members over a restructuring plan for the design firm EYP may not be at the top of anyone’s list of matters of grave public interest in the midst of the COVID-19 epidemic. But if you care about transparency in the courts – and particularly about the public’s ability to track litigation in the nation’s leading business court as companies absorb the shock of COVID-19 shutdowns - you ought to pay attention to filings late last week in Birdsey v. EYP Group Holdings, a case before Vice-Chancellor Kathaleen McCormick.

The suit and a motion for expedited proceedings were filed under seal on May 5 by Tom Birdsey, the ex-CEO and current board chairman of EYP, and fellow board members Ira Starr and David Watkins. Under Chancery Court’s regular rules, plaintiffs can file complaints under seal without obtaining court permission. They must then supply notice of the complaint and a proposed redacted version of the suit to defendants, who have up to three days to designate additional confidential information. If defendants haven’t demanded additional redactions after those three days, plaintiffs can publicly file their proposed redacted complaint.

Plaintiffs’ lawyers from Friedlander & Gorris, Wilk Auslander and Covington & Burling notified the EYP defendants of the sealed suit and proposed public version on May 5, according to a motion they filed on Thursday. Their redacted complaint was due to be filed on May 8 under Chancery rules.

But the defendants informed them, according to the May 7 motion, that Chancery Court’s regular rules had been superseded by an emergency order from the Delaware Supreme Court that suspended statutes of limitations and deadlines to help courts and litigants deal with COVID-19 disruptions. Plaintiffs’ lawyers moved Vice-Chancellor McCormick to order the defendants to meet their deadline for proposed redactions in order to allow Birdsey and his fellow board members to file a redacted version of their complaint on the public docket.

Delaware, they said, adopted its sealing rules to recognize the fundamental public interest in court filings. In this case, they argued, that interest is acute: “This case is a corporate governance dispute about the validity of a restructuring process that is being pursued and implemented by one faction of the board of directors … without the authority of the full board, while material information is being deliberately withheld from the chairman of the board and other non-employee directors,” they alleged. The public needs to know, they argued, that their faction of the board is challenging the basic validity of the restructuring.

The defendants responded Friday. The Supreme Court’s emergency COVID-19 order, they argued, clearly extends deadlines specified in the regular rules until June 1. “While no one disputes the importance of the public’s right of access to judicial records, that importance must be balanced against the fact that Delaware courts and litigants in those courts are operating under a judicial emergency,” wrote defense counsel from Morris Nichols Arsht & Tunnell. (Additional defendants represented by Richards Layton & Finger filed a letter joining the opposition brief.) EYP is not publicly traded, the brief said, so there’s no overriding public interest in a fight among board members. And besides, the defendants said, they relied in good faith on the Supreme Court emergency suspension of deadlines. It would be “completely unfair” to force them to rush to designate information as confidential.

Plaintiffs implicitly acknowledged that argument in their response brief, which does not assert that they have an immediate right to file their redacted brief under Chancery Court’s underlying rules. Instead, they argued that the Supreme Court’s COVID-19 emergency order acknowledges that court-ordered deadlines remain in place, so Vice-Chancellor McCormick can order defendants to submit their proposed redactions right away. “The defendants have no factual or legal basis for arguing that it is consistent with the First Amendment and the common law right of public access for court proceedings in an expedited governance dispute to be shielded from public access for the entirety of the month of May,” they argued.

As of midday Monday, the vice-chancellor had not yet issued a decision in the confidentiality dispute, although she did rule that the plaintiffs can submit a motion for temporary restraining order under seal. The dissenting board members asked to keep that motion under wraps because it contains references to legal advice given to EYP board members and repeats allegations that may be redacted from the complaint when it’s finally filed publicly.

Defense counsel Kenneth Nachbar of Morris Nichols and Raymond DiCamillo of Richards Layton did not immediately respond to emails requesting comment.

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