The Business Court's Seal Is Not a Rubber Stamp

The sealing of a complaint due to confidentiality concerns is more than an administrative exercise, according to a Business Court order last week.  Parties seeking to maintain a complaint under seal will face a heavy burden, and the Court signaled a willingness to revisit orders of other courts, both inside and outside North Carolina.

In Smith v. Raymond, a shareholder derivatively sued various directors and officers of a corporation.  Procedurally, the dispute began in the Delaware Chancery Court, in which the Plaintiff sued the corporation itself to obtain access to the company's books and records.  Under the terms of a stipulation in that case, if the Plaintiff relied on information obtained in that case to file derivative claims later, he was required to obtain the Chancery Court's permission and to file the complaint under seal.

The Plaintiff followed the Delaware court's order and filed his complaint under seal in Mecklenburg County.  He obtained an order from a resident Superior Court judge approving the sealing of the complaint, then designated the case as a mandatory complex business case.  Like many Superior Court orders, the sealing order did not recite any findings of fact or conclusions of law.  It read in its entirety:  "Plaintiff having moved the Court for leave to file his Complaint under seal, and good cause appearing therefore [sic], IT IS HEREBY ORDERED that Plaintiff may file his Complaint in the instant action under seal."

Judge Diaz held that he was not bound by either the Delaware stipulation or the pre-designation Mecklenburg County order.  First, the Business Court has the inherent authority to modify orders entered by a pre-designation judge.  Second, although the parties contemplated that the lawsuit would be brought here, the stipulation itself was entered by the Delaware Chancery Court.  "Put bluntly, the Stipulation does not bind this Court."

The Court stated that sealing of court documents "is inconsistent with the North Carolina Public Records Act."  Under existing law, "Absent 'clear statutory exemption or exception, documents falling within the definition of 'public records’ in the Public Records Law must be made available for public inspection.'"  (See News & Observer Publ’g Co. v. Poole, 330 N.C. 465, 486, 412 S.E.2d 7, 19 (1992)).  Court records are public records, and their sealing is appropriate only “when there is a compelling countervailing public interest and closure of the court proceedings or sealing of documents is required to protect such countervailing public interest.”  (See Virmani v. Presbyterian Health Servs., 350 N.C. 449, 476, 515 S.E.2d 675, 693 (1999)). 

After examining the complaint, the Court concluded that it was "hard pressed" to find such a countervailing public interest to support sealing the entire complaint.  There were no documents attached to the complaint, so the express terms of the stipulation were not violated.  Although there were quotes from some documents in the complaint, most of those quotes were taken from letters between the CEO and other officers and directors of the corporation.

The Court gave the parties ten days to file supplemental briefs if they insisted that the entire complaint needed to remain under seal.

(The image is the 1981 cover from the single "Our Lips Are Sealed" by the superfluously-apostrophed band The Go-Go's).

Full Order

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