In the recent decision of Product Madness, Inc. v. Brooke Kingston, the Delaware Court of Chancery addressed whether portions of Product Madness, Inc.'s complaint and exhibits, related to a confirmed arbitration award, should remain confidential under Court of Chancery Rule 5.1. The Court concluded they should not.
Factual Background:
Product Madness is a corporation that operates digital entertainment products, including mobile applications and web-based games. Kingston was a user of Product Madness's applications, bound by its Terms of Service (TOS), which included a mandatory arbitration provision requiring confidentiality of the arbitration proceedings. Arbitration was initiated by Kingston against Product Madness, which resulted in Product Madness prevailing. The arbitration award, TOS, and Kingston's arbitration demand were included as exhibits in the complaint filed by Product Madness before the Court of Chancery.Product Madness filed public versions of the complaint and exhibits, not designating any material as confidential. Kingston, however, designated all material related to the arbitration as confidential, leading to redactions in the public versions. Product Madness challenged this designation.
Analysis:
Vice Chancellor Zurn noted thatCourt proceedings and filings are presumptively open to the public to ensure transparency and accountability.Under Rule 5.1, information can be kept confidential if it is shown to be sensitive and non-public, and if the harm from disclosure outweighs the public interest in access.
Kingston argued the TOS's confidentiality provision made the information sensitive. The Court rejected this, stating contractual agreements alone do not meet the requirement for sensitivity under Rule 5.1. Kingston's arguments that enforcing contractual confidentiality is good public policy and that Product Madness should be estopped from challenging confidentiality were dismissed. The Court emphasized that Rule 5.1's requirements must be independently satisfied regardless of the TOS's enforceability.
Kingston's motion for continued confidential treatment was denied. The Register in Chancery was directed to unseal the complaint and exhibits.
Key Takeaway:
The Court concluded that maintaining the confidentiality of the arbitration information was not justified under Rule 5.1, highlighting the importance of public access to court proceedings.
Originally published June 5, 2024
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