Court Considers Whether Plaintiff’s Inadvertent Electronic Filing of Confidential Documents As Exhibits to Motion Papers Waived Trade Secret Protection

On July 14, 2015, Justice Platkin of the Albany County Commercial Division issued a decision in HMS Holdings Corp. v. Arendt, 2015 NY Slip Op 51034(U), considering whether the inadvertent e-filing of confidential documents compromised the trade secret status of the documents.

In HMS Holdings, the plaintiff filed suit against former employees seeking to enforce non-competition and non-solicitation agreements and to prevent misappropriation of trade secrets. In support of its motion for a preliminary injunction, the plaintiff filed through the New York State Courts Electronic Filing ("NYSCEF") system an affidavit with "more than 1,500 pages of exhibits, including many of the alleged trade secrets that HMS [sought] to protect" through the lawsuit. In their opposition to the plaintiff's preliminary injunction motion, the defendants argued that the plaintiff's "inadvertent, public disclosure automatically terminated the trade secret status" of the e-filed exhibits. The Court rejected the "sweeping contention that the inadvertent e-filing of documents containing trade secrets necessarily terminates any possible trade secret protection by operation of law," explaining:

The cases cited by defendants, which either do not involve e-filing or predate its widespread adoption, do not compel application of the rigid and formulaic rule for which they advocate. The only case cited by defendants that specifically addresses court filings . . . found a waiver of trade secret protection based upon multiple, un-rectified publications in court records over a span of several years. Further, while defendants correctly observe that NYSCEF may be accessed via the Internet,it does not follow that the inadvertent e-filing of an unredacted document on NYSCEF necessarily constitutes a posting to the Internet that renders the information generally known.

Justice Platkin went on to hold that "the present record is insufficient" to find that the e-filed information "has become generally known or readily ascertainable through proper means," such that it is no longer entitled to trade secret protection, but he would revisit the issue "[f]ollowing the completion of discovery," when 'the myriad of factors necessary to the determination of that issue can be applied to a fuller and firmer factual record."

E-filing is a tremendous convenience to commercial litigators, but as this case shows, it can have its pitfalls. Erroneously filed documents are immediately sent by email to all parties and can be instantly accessed by the general public on the NYSCEF website. It is worth noting that the standard confidentiality order used in the New York County Commercial Division (available at http://www.nycbar.org/pdf/report/ModelConfidentiality.pdf) contains two procedures for dealing with the use of confidential documents in court filings. First, if the filing party gives seven days’ notice of its intent to file confidential documents as exhibits, the producing party must move by order to show cause to have the documents filed under seal if it wishes to maintain the confidentiality designation. Second, as an alternative procedure, the confidential documents can be filed in redacted form with unredacted hard copies delivered directly to the Part Clerk in a sealed envelope.