Brown v. Prove Identity, Inc.

DOCUMENT

ELECTRONICALLY FILED

DOC #:

& COLE SCHOTZ pc. DATE FILED: _ 03/20/2024

Steven L. Klepper —

pained in NJ and NY Maryland

Reply to New York Office Texas

Writer’s Direct Line: 646.563.8947 Florida

Writer’s Direct Fax: 646.563.7947

Writer’s E-Mail: sklepper@coleschotz.com

March 6, 2023

Via ECF

The Honorable Analisa Torres

United States District Court for the Southern

District of New York

500 Pearl Street

New York, NY 10007-1312

Re: Brown v. Prove Identity, Inc., et al., Civil Action No. 1:22-cv-09315-AT

Dear Judge Torres:

We write on behalf of Defendants Prove Identity, Inc. (“Prove”) and Rodger Desai

(“Desai,” and, together with Prove, “Defendants”) in the above-referenced action to respectfully

request that the Court order the sealing of several exhibits to be filed contemporaneously in

connection with Defendants’ Motion to Dismiss the Complaint filed by Plaintiff Matthew Brown

(the “Motion to Dismiss”). In particular, Defendants request that the Court permit them to file

copies of the following exhibits under seal to protect Prove’s sensitive, non-public financial and

business information contained therein, which, if disclosed to the public, is substantially likely to

cause Prove competitive harm:

1. Payfone, Inc. 2008 Stock Plan Notice of Stock Option Grant to Plaintiff (and

accompanying Stock Option Agreement), dated March 21, 2013, attached as Exhibit

B to the March 6, 2023 Declaration of Steven L. Klepper in Support of Defendants’

Motion to Dismiss (the “Klepper Declaration”);

2. Payfone, Inc. 2008 Stock Plan Notice of Stock Option Grant to Plaintiff (and

accompanying Stock Option Agreement), dated November 19, 2013, attached as

Exhibit C to the Klepper Declaration;

3. Payfone, Inc. 2008 Stock Plan Notice of Stock Option Grant to Plaintiff (and

accompanying Stock Option Agreement), dated June 4, 2014, attached as Exhibit D

to the Klepper Declaration;

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4. Payfone, Inc. 2008 Stock Plan Notice of Stock Option Grant (and accompanying

Stock Option Agreement), dated September 24, 2014, attached as Exhibit E to the

Klepper Declaration; and

5. Payfone, Inc. 2008 Stock Plan Notice of Stock Option Grant (and accompanying

Stock Option Agreement), dated September 13, 2016, attached as Exhibit F to the

Klepper Declaration (each, an “Option Grant Notices,” collectively, the “Option

Grant Notices”).

Pursuant to Section IV.A.ii. of Your Honor’s Individual Practices in Civil Cases, we have

conferred with counsel for Plaintiff regarding the requested sealing, and they indicated that

Plaintiff does not intend to oppose the request. Defendants submit the following legal arguments

in support of their request to seal the five Option Grant Notices.

I. The Sealing of Five Exhibits to Defendants’ Motion to Dismiss is Warranted Under

the Circumstances

While there is a common law presumption in favor of permitting public access to

“Judicial records and documents,” this Court ultimately “has supervisory power over its own

records and files,” and public access to same “has been denied where court files might have

become a vehicle for improper purposes.” Nixon v. Warner Commce’ns, Inc., 435 U.S. 589, 598

(1978). The Second Circuit has articulated a three-step test for determining whether a document

may be sealed, pursuant to which the Court must: (1) determine whether the document ts a

“Judicial document,” 7.e., one that is “relevant and useful to the performance of the judicial

function and useful in the judicial process”; (11) “determine the weight of the presumption of

access” in light of the role and value of the document “in the exercise of Article III judicial

power”; and (111) identify and balance all of the factors counseling against disclosure and weigh

them against the presumption of access. See Mirlis v. Greer, 952 F.3d 51, 59 (2d Cir. 2020).

Here, Defendants do not contest that the Option Grant Notices are “judicial documents”

because they are being filed in connection with Defendants’ Motion to Dismiss, and thus, a

“presumption of access attaches.” Mirilis, 952 F.3d at 59. However, as outlined above, the

Court must also consider “the weight of the presumption” and then balance competing

considerations against it, including “the privacy interests of those resisting disclosure.”

While the Option Grant Notices generally, as well as a few of the specific provisions

therein, are central to this litigation, and thereby to adjudicating the legal issues raised in

Defendants’ Motion to Dismiss, most of the detailed information contained in the documents is

not squarely relevant to the substantive issues presently before the Court. For example, neither

the details contained in the Option Grant Notices regarding exercise price per share and vesting

dates for Plaintiffs stock options, nor many of the specific terms and conditions governing the

option grants, are central to resolving Defendants’ arguments as to the viability of Plaintiff’ s

claims at this stage. Indeed, Plaintiff did not attach copies of the Option Grant Notices to his

Complaint and only references the specific contents thereof in a handful of his allegations.

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Nevertheless, Defendants believe that these documents are important enough to be presented to

the Court in their entirety in connection with the Motion to Dismiss, so that the Court has the

complete context before it. Thus, although there is some weight to the presumption in favor of

access with respect to the Option Grant Notices, it is weaker than as to documents that are

wholly and centrally relevant to the substantive issues in the dispute.

Weighing this weaker presumption of public access to the Option Grant Notices against

Defendants’ competing interest in maintaining the privacy of the confidential and competitively

sensitive business and financial information contained therein demonstrates that sealing is

warranted here. The Option Grant Notices contain sensitive, non-public information about

Prove’s business and financials, including details concerning the specific terms and conditions

governing the stock options Prove awards to its employees and the vesting schedules used by

Prove in connection with those awards. Moreover, the Option Grant Notices reveal pricing

information that provides insight into Prove’s historic valuation as of the dates of each of the

awards.

Defendants seek to maintain the privacy of this competitively sensitive and confidential

information to protect their commercial interests, which courts in the Second Circuit have found

sufficient to overcome the presumption of public access. See United States v. Amodeo, 71 F.3d

1044, 1051 (2d Cir. 1995) (“Commercial competitors seeking an advantage over rivals need not

be indulged in the name of monitoring the courts”); see also cases discussed below. Here, there

is a substantial likelihood that public disclosure of the confidential information contained in the

Option Grant Notices will result in competitive harm to Prove’s business. Specifically, this

information would give Prove’s competitors a detailed look into Prove’s compensation practices,

as well as the particulars of the option awards Prove has granted to its employees (including the

number of shares awarded, specific terms and conditions of the awards, and vesting schedules

used). In addition, the information contained the Option Grant Notices, taken together, provides

acute insight into the value of Prove’s business at the time the options were awarded.

The disclosure of this information — which implicates Prove’s “specific business

information and strategies” as they relate to Prove’s equity incentive compensation and stock

prices — may harm Prove’s ability to attract and retain top talent, one of the company’s most

valuable assets as a growing technology startup. For example, competitors may misappropriate

the confidential details of Prove’s equity awards to structure their own compensation packages

and use same to harm Prove in future employment negotiations and unfairly lure potential new

employees away from Prove and to the competitor. See Oliver Wyman, Inc. v. Eielson, 282 F.

Supp. 3d 684, 706-07 (S.D.N.Y. 2017) (allowing the redaction of average and individual salary

information from summary judgment record due to risk of competitive harm); Louis Vuitton

Malletier S.A. v. Sunny Merch. Corp., 97 F. Supp. 3d 485, 511 (S.D.N.Y. 2015) (redactions

warranted where disclosure of a company’s “specific business information and strategies”

threatened to cause the company economic harm by “provid[ing] valuable insights into a

company’s current business practices that a competitor would seek to exploit”); Graczyk v.

Verizon Commce’ns, Inc., 2020 WL 1435031, at *9 (S.D.N.Y. Mar. 24, 2020) (redactions

warranted where “material contain[ed] sensitive information that, if disclosed, might harm

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[movant’s] competitive standing” and cause them to suffer “competitive disadvantage in future

negotiations”); KeyBank Nat’l Ass’n v. Element Transp. LLC, 2017 WL 384875, at *3 (S.D.NLY.

Jan. 26, 2017) (“KeyBank asserts that the sensitive nonparty financial information it seeks to

protect is all the data a competitor would need to determine its valuation of the leases. This

competitive injury is sufficiently serious to warrant protection.”).

Disclosure would further raise a substantial risk of harm to Prove by giving competitors

access to Prove’s confidential financial information. Indeed, the fact that Prove is a privately-

held company — whose financial and business information is not widely disclosed and whose

stock plan information has no present impact on the general public — underscores that the

confidentiality of its business and financial information should be maintained. See Rodo Inc. v.

Guimaraes, 2022 WL 17742392, at *1 (S.D.N.Y. Dec. 5, 2022) (“Sealing is particularly

appropriate when the confidential business information relates to a privately held company.”

(citing cases)); Louis Vuitton, 97 F. Supp. 3d at 511 (permitting redactions of information

regarding the defendant company, “a closed business, which implicates legitimate privacy

interests”); Amodeo, 71 F.3d at 1051 (“Financial records of a wholly owned business ... and

similar matters will weigh more heavily against access than conduct affecting a substantial

portion of the public.”).

In sum, the Option Grant Notices are not of sufficient public interest to overcome Prove’s

legitimate business and financial interest in keeping the confidential, proprietary, and

competitively sensitive information contained therein private. Accordingly, sealing of this small

set of documents is warranted here.

Il. Conclusion

For these reasons, Defendants respectfully request that the Court enter an order sealing

the five Option Grant Notices, which are attached as Exhibits B — F to the Klepper Declaration.

If this request is acceptable to Your Honor, a “So Ordered” line is set forth below for the Court’s

convenience.

As always, we thank the Court for its time and attention to this matter.

Respectfully submitted,

/s/ Steven L. Klepper

Steven L. Klepper

SLK:cgh

ce: All counsel of record (via ECF)

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GRANTED. The Clerk of Court is directed to terminate the motion at ECF No. 27.

SO ORDERED.

Dated: March 20, 2024 — AK

New York, New York ANALISA TORRES

United States District Judge