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Zimmer, Inc. v. Scott

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION


July 28, 2010

ZIMMER, INC., A DELAWARE CORPORATION, AND ZIMMER HOLDINGS, INC., A DELAWARE CORPORATION, PLAINTIFFS,
v.
W. NORMAN SCOTT, M.D., DEFENDANT.

The opinion of the court was delivered by: Magistrate Judge Susan E. Cox

District Judge Blanche M. Manning

MEMORANDUM OPINION AND ORDER

This action began in state court in April 2010 when plaintiffs, Zimmer Inc. and Zimmer Holdings, Inc. (collectively "Zimmer"), filed a complaint to vacate an arbitration award that was entered against it. The underlying arbitration award required Zimmer to pay attorneys' fees in the amount of $350,000 to defendant, Norman Scott, M.D.*fn1 The case has since been removed to federal court and is now before us for discovery supervision, settlement conference, and all nondispositive pretrial motions. First, however, we are to determine whether the underlying arbitration award remains confidential. The two motions before us are: Dr. Scott's motion to unseal the award [dkt 28] and Zimmer's motion to seal the award [dkt 26]. After these motions were filed, Zimmer filed a motion to set a briefing schedule for these motions, and a memorandum in support.*fn2 In making its finding that the parties were to file no further motions requesting the setting of briefing schedules, the district court struck Zimmer's motion as unnecessary.*fn3 We find the filings before us to be sufficient to make a determination and grant Dr. Scott's motion to unseal the award [dkt 28] and deny Zimmer's motion to seal the award [dkt 26].

I. Background

Zimmer is a public company engaged in the medical device industry.*fn4 The defendant, Dr. Scott, alleged Zimmer failed to pay royalties due to him under certain licensing agreements that involved the development of orthopaedic knee implants.*fn5 Zimmer also allegedly failed to furnish to Dr. Scott required quarterly royalty statements.*fn6 The parties agreed to arbitration but, just before the arbitration hearing, Zimmer withdrew its affirmative defenses and agreed to pay Dr. Scott all past due royalties.*fn7 Dr. Scott then filed a motion with the Arbitration Panel ("Panel") seeking reimbursement for attorneys' fees and costs he expended in originally seeking his royalty payments, alleging Zimmer filed its defenses in bad faith.*fn8

The panel found it had "inherent authority to award attorneys' fees when a party engages in bad faith litigation" or files frivolous defenses or claims.*fn9 The panel held that Zimmer and its counsel did not engage in bad faith litigation tactics. But to resolve the other issue - whether Zimmer's failure to pay Dr. Scott, proceed to arbitration, and then pay in full nineteen months later constituted bad faith - the Panel determined an evidentiary hearing would be required.*fn10 Ultimately, on March 5, 2010, the Panel concluded that Zimmer acted in bad faith when it initially filed its affirmative defenses.*fn11 The panel ordered Zimmer to pay Dr. Scott's attorneys' fees and costs of the arbiters.*fn12 Approximately three months later Dr. Scott filed a motion to confirm the arbitration award, and Zimmer then commenced this action to challenge that arbitration award.*fn13

II. Analysis

Zimmer argues that the Court should permit the arbitration award to be filed under seal because, at the time that the award was entered, the panel found as follows: the Panel orders that the Confidentiality Agreement and Order shall continue in full force and effect, and that the hearing testimony, exhibits and this Final Award shall all be maintained in confidence pursuant to the terms of the Confidentiality Agreement and Order, and...the parties shall take all reasonable steps to preserve its confidentiality...until a court shall rule otherwise.*fn14

That is the extent of Zimmer's argument in its motion to seal. Zimmer, however, further argues its position in the memorandum in support of its motion to set a briefing schedule, which was already stricken by the district court. Because the arguments in that motion relate to this issue, for purposes of a full analysis we will briefly address them. Citing to a case from the Eastern District of New York, Zimmer claims that "...there is no presumption of access to the terms of such confidential settlement agreements absent extraordinary circumstances or a compelling need."*fn15 The Court in that case also extended this reasoning to arbitration agreements.*fn16

But in the Seventh Circuit there is a strong presumption in favor of access to court files and documents. As our courts have noted, the public at large funds the courts and has a right to know what goes on during judicial proceedings.*fn17 Judge Moran, paraphrasing Grover Fresh Distrib., Inc. v. Everfresh Juice Co., stated "...there must be a convincing demonstration that suppression is essential to preserve higher values and is narrowly tailored to serve that interest before the presumption is rebutted."*fn18 Only good cause demonstrated by the party seeking confidentiality can rebut that presumption.*fn19 Any doubt whether material should be sealed should be resolved in favor of disclosure.*fn20 Magistrate Judge Cole espoused, in line with the Seventh Circuit, that "the corollary principle [is] that 'a [motion to] seal is an exceptional measure' to be resorted to in 'an exceptional circumstance.'"*fn21

Dr. Scott has referred us to this same line of decisions. In his motion he notes that the Seventh Circuit has held - at least as to discovery and arbitration awards - that a party who refuses to accept an arbitration award has no right to maintain the confidentiality of the award.*fn22 More specifically,"...dispositive documents in any litigation enter the public record notwithstanding any earlier agreement."*fn23 Dr. Scott then argues that Zimmer has failed to establish the good cause required for court documents to be sealed. Zimmer's only support for keeping the award under seal is the actual language in the arbitration award and because no other justification has been sufficiently shown by Zimmer - such as the need for protection of trade secrets - the award should not be kept sealed in these proceedings.

We agree. As the Seventh Circuit has explained, "...once a party seeks judicial review of an arbitration award" the confidentiality of that award is "...lost absent compelling justification."*fn24 In

Baxter Int'l v. Abbott Labs.,*fn25 the parties jointly requested to file documents under seal while broadly claiming certain documents as "confidential" without analysis as to why. In that case, Judge Easterbrook aptly stated:

Beyond asserting that the document [in question] must be kept confidential...[the party] contends only that disclosure 'could ... harm [the party's] competitive position.' How? Not explained. Why is this sort of harm...a legal justification for secrecy in litigation? Not explained. Why is the fact that some other document contains references to a license sufficient to conceal the referring document? Not explained.*fn26

Zimmer summarily argues that disclosure of the award would violate the confidentiality that the arbiters imposed upon the parties during arbitration. Though, like in Baxter, it does not address or specify why, beyond the existence of the confidentiality imposed by the arbiters.

There are two additional arguments to address, which are also found in Zimmer's motion for a briefing schedule.*fn27 Zimmer argues that: the cases cited by Dr. Scott (and now by this Court) are not relevant to this dispute because those cases did not involve arbitrations that were to remain confidential, and; Dr. Scott is judicially estopped from moving to unseal documents because he previously moved the Court to seal documents.*fn28 The first argument does not get far. What we must take from the Seventh Circuit cases cited here is the requirement that a party show specific justification for documents to remain confidential.*fn29 Zimmer has not done so.

As to Zimmer's second argument - that Dr. Scott previously filed documents under seal on June 17, 2010*fn30 so he cannot now reverse his position and request that future documents be unsealed - we also disagree. As explained by Dr. Scott, these documents were filed under seal only to ensure that he was in compliance with the confidentiality obligations in the original arbitration award.*fn31 At the time, Dr. Scott expressly stated that he was reserving his rights to move to unseal these documents at a later date.*fn32 So there is no estoppel argument, as suggested by Zimmer, that would prevent the unsealing of the arbitration award.

We find that Zimmer has failed to present a compelling justification for the award to remain confidential. Because Zimmer is the party refusing to accept the result of the arbitration award, it "has no claim to keep a lid on its own documents."*fn33 As noted in Baxter, "[i]t had, and spurned, a sure path to dispute resolution with complete confidentiality: accept the result of the closed arbitration."*fn34 Zimmer's motion to seal the award is, therefore, denied [dkt 26] and Dr. Scott's motion to unseal the award is granted [dkt 28].

IT IS SO ORDERED.

Susan E. Cox UNITED STATES MAGISTRATE JUDGE


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