The Commonwealth Court has adopted the federal standard for requests for protective orders covering trade secrets, which requires a party seeking discovery to show it has a compelling need to obtain the information that outweighs the potential harm of disclosure.
The en banc panel relied on the state Superior Court’s 2006 ruling in Crum v. Bridgestone/Firestone North American Tire, in which it applied the federal standard for protective orders, holding that once a party shows requested records contain trade secrets or confidential business information, the burden shifts to the party seeking discovery.
In MarkWest Liberty Midstream & Resources v. Clean Air Council, the court ruled that the state Environmental Hearing Board must determine whether the Clean Air Council’s need to compel discovery of a natural gas company’s trade secrets outweighs the potential harm caused to the gas company by disclosing the documents.
The panel unanimously reversed the portion of an EHB order denying natural gas processor MarkWest Liberty Midstream & Resources’ motion for a protective order and granting defendant CAC’s motion to compel discovery of several documents related to the gas company’s plan to expand one of its processing facilities.
But the court remanded the case back to the EHB to determine which of the requested documents contain trade secrets or confidential business information and which do not, and then to decide whether the CAC has demonstrated a compelling need for the information that outweighs MarkWest’s potential harm.
"Once a party establishes that the information sought is a trade secret, the burden shifts to the requesting party to demonstrate, by competent evidence, that there is a compelling need for that information and that the necessity outweighs the harm of the disclosure," Judge Patricia A. McCullough wrote for the court.
McCullough was joined by President Judge Dan Pellegrini and Judges Bernard L. McGinley, Bonnie Brigance Leadbetter, Renee Cohn Jubelirer, Mary Hannah Leavitt and P. Kevin Brobson.
According to McCullough, the CAC appealed the state Department of Environmental Protection’s approval of MarkWest’s plan to install a fractionator tower and additional process heater at its Houston Gas Processing Plant in Chartiers Township, Pa.
From August through October 2011, McCullough said, the CAC sought discovery of unredacted versions of MarkWest’s approval-related responses and attachments submitted to the DEP; operational data; maps and design documents; confidential communications; and gathering and processing agreements, as well as correspondence, with driller Range Resources.
MarkWest, refusing to disclose the documents on the grounds that many of them contained trade secrets or confidential business information, filed a motion for a protective order, which the EHB denied in December 2011, according to McCullough.
That same month, the CAC sought an EHB order compelling MarkWest and the DEP to release the requested documents, McCullough said.
In early 2012, MarkWest filed five motions for a protective order under Pa.R.C.P. 4012(a)(9), barring the disclosure of the Range Resources agreements and correspondence and restricting the CAC’s use of the other documents, according to McCullough.
In July 2012, the EHB issued an order barring the disclosure of certain documents and requiring the disclosure of others — some under seal and some unrestricted, McCullough said.
MarkWest subsequently granted the CAC access to some of the requested documents but refused to release 60 documents related to operational data and confidential communications, according to McCullough.
On appeal to the Commonwealth Court, MarkWest argued that the EHB, in ruling on the company’s request for a protective order, failed to properly place the burden on the CAC to show it had a compelling need for the documents it requested, McCullough said.
MarkWest cited Crum, but the CAC pointed to the U.S. Court of Appeals for the Third Circuit’s 1994 ruling in Pansy v. Borough of Stroudsburg, in which it adopted a balancing test that weighs the necessity of disclosure against the harm of disclosure on a case-by-case basis.
Ultimately, McCullough agreed with MarkWest.
Pansy, according to McCullough, involved confidentiality orders in a civil rights case, not trade secrets or confidential business information.
"Furthermore, Pansy has never been adopted or used by a Pennsylvania court to analyze Rule 4012(a)(9) requests or determine whether good cause exists under Rule 4012(a)(9)," McCullough said.
McCullough said the Crum holding applies and requires courts to first determine whether requested information contains trade secrets or confidential business information and then to decide whether the requester has a compelling need for that information.
"The Superior Court adopted the federal standard in Crum because Pennsylvania affords trade secrets great protections and has a strong public policy in favor of privacy rights in matters involving trade secrets," McCullough said. "Like our sister court, we conclude that the balancing test in Pansy does not adequately address those strong privacy rights and protections and we are similarly persuaded that the standard utilized in Crum fairly balances the needs and concerns of the owner of the trade secrets with those of the party seeking disclosure. Therefore, we herein officially adopt the standard in Crum for requests for protective orders under Rule 4012(a)(9)."
The EHB, however, did not perform a complete analysis, McCullough said.
Although the EHB found that many of the requested documents did not contain trade secrets, it also stated that even if they did, the CAC’s need for the information was compelling enough to outweigh potential harm to MarkWest, according to McCullough.
However, the EHB failed to identify which documents contained trade secrets and did not make clear whether the CAC showed that such documents were relevant and necessary to its case, McCullough said.
McCullough remanded the case to the EHB to determine which documents contained trade secrets or confidential business information based on the criteria set forth in Crum.
"After doing so, the board must determine whether CAC has demonstrated a compelling need for the information sought which outweighs the harm of disclosure," McCullough said.
Counsel for MarkWest, Lawrence A. Demase of Reed Smith in Pittsburgh, said the ruling was important because it "gives due protection to truly confidential documents."
Counsel for the CAC, Jordan B. Yeager of Curtin & Heefner in Doylestown, Pa., said he and his client are confident that the court’s adoption of the federal standard applied in Crum will not change the result in MarkWest.
A spokesperson for the DEP said, "We weighed in on the legal test that should be applied, not whether or not these documents should be protected. The court has agreed."
(Copies of the 13-page opinion in MarkWest Liberty Midstream & Resources v. Clean Air Council, PICS No. 13-1100, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •