Appeal from the United States District Court for the Eastern District of Pennsylvania.
Weis, Higginbotham and Sloviter, Circuit Judges.
A. LEON HIGGINBOTHAM, JR., Circuit Judge
Appellants, Philadelphia Newspapers, Inc. and Dow Jones & Company, Inc., appeal from three decisions of the district court, the first of which closed a hearing on motions for preliminary injunctions to the public and the press. One of these motions asked the district court to order Publicker Industries, Inc., appellee, to disclose certain information at its annual stockholder's meeting concerning Publicker's operations which it sought to keep confidential. The district court's second decision order the transcript of the hearing that related to this "confidential" information to be sealed. The third decision ordered appellants' counsel not to disclose to their clients this "confidential" information even though Publicker's memorandum of law opposing appellants' motions for access to the judicial transcripts revealed it.
Appellants claim that the district court abused its discretion in each of these three decisions and thereby violated their common law and First Amendment rights of access to the civil trial and judicial records. Appellants also claim that the district court violated their rights to due process as well.
These appeals bring to this court an issue of first impression: Does the First Amendment secure to the public and to the press a right of access to civil proceedings? We hold that the First Amendment does secure a right of access to civil proceedings. Because the district court committed certain procedural and substantive errors with respect to its three decisions that impermissibly violated appellants' First Amendment, common law and due process rights, we will reverse the decisions of the district court.
The weighty constitutional questions presented in these appeals arise from a seemingly unrelated proxy fight to determine control of a publicly traded corporation. The corporation, Publicker Industries, Inc. ("Publicker"), has outstanding over 8,300,000 shares of stock which are traded on the New York Stock Exchange by some 6,000 stockholders. The Neuman family, however, controls approximately 37% of these shares through individuals and through various estates.
The defendant in the underlying litigation, David Cohen, sought to gain control of Publicker's Board of Directors at its annual stockholders' meeting scheduled for December 8, 1982. Two months earlier Cohen had entered into an agreement with certain members of the Neuman family granting him their irrevocable proxies to be voted at the December meeting. In return, Cohen agreed to purchase a substantial number of Neuman family shares of Publicker stock if he succeeded in gaining control of the board.
This agreement was resisted by a member of the Neuman family who brought an action in the Orphans' Court Division of the Court of Common Pleas of Delaware County, Pennsylvania. The complaint alleged that the agreement violated Pennsylvania Corporate Law, 15 Pa. Cons. Stat. Ann. § 1504 (Purdon 1983), which prohibits any corporate stockholder from selling his voting rights or his proxy. Following a hearing, Orphans Court Judge Francis J. Catania set aside the stock purchase agreement because it was without legal foundation.
By this time, Publicker already had commenced the suit from which these appeals arise. On the day of the Delaware County Orphans Court hearing, December 2, 1982, Publicker filed a complaint against Cohen in the United States District Court for the Eastern District of Pennsylvania claiming that Cohen had made misrepresentations and had failed to make material disclosures in Schedules 13D and 14B that he filed with the Securities and Exchange Commission in connection with his planned purchase of Publicker stock. Publicker also filed a Motion for Preliminary Injunction asking the court to enjoin Cohen from soliciting proxies for and voting proxies at the annual meeting on December 8.
Informed of Judge Catania's order of December 2, 1982 setting aside the stock purchase agreement, Publicker filed a Motion for Temporary Restraining Order ("TRO") on December 3, 1982.Publicker maintained that Judge Catania's order required Cohen to amend his SEC filings to show that this agreement had been invalidated. The motion asked the district court to prohibit Cohen from soliciting proxies for the December 8 meeting until he amended his filings. The district court held a conference on December 3 to consider the TRO on the day it was filed. It was at this conference that the question was first raised concerning the harmful effects to Publicker if certain information concerning its operations were disclosed at the December 8 meeting.
As a result of this conference, the court granted Publicker's motion for a TRO, but ordered another hearing to be held on December 6. At this second hearing, Cohen filed his own Motion for Preliminary Injunction asking the court to postpone the December 8 stockholders' meeting until Publicker disclosed to its stockholders the information referred to at the December 3 conference. Cohen claimed that Publicker's failure to disclose this information violated federal securities laws. Publicker denied this allegation and asserted that disclosure at this time was premature because the nature of the information was such that it might never become material and subject to required disclosure. Publicker also claimed that Cohen violated a confidentiality agreement between him and Publicker in using this information to seek a postponement of the annual meeting. The district court decided to hear Cohen's and Publicker's motions for preliminary injunction the next day.
This hearing commenced on the morning of December 7 in open court. Two issues were before the district court. First, the court had to decide whether Cohen should be enjoined from soliciting and voting proxies because of his failure to comply with federal and state statutes. Second, the court had to determine whether the information that was the subject of Cohen's motion for preliminary injunction was of such a nature that Publicker was required to disclose it to its stockholders at its annual meeting the next day.
It is not clear from the record whether anyone from the general public attended the morning session of this December 7 hearing. However, when court reconvened after lunch Dick Cooper, a reporter for the Philadelphia Inquirer, was present in the courtroom. At side bar, Publicker immediately requested that the hearing be closed to all except the parties, their counsel and witnesses because of the sensitive nature of the information that was to be discussed and because the very issue before the court was whether this information should remain confidential. After a short recess to afford counsel an opportunity to find authority for excluding the press from the courtroom, the district court granted Publicker's request to close the hearing. The court explained:
It seems to me by permitting the press here now, that the press would be usurping the very function that is reposed in me; namely, deciding whether this information should be revealed or not. That is the very issue of this case . . . Here, if it is disclosed the press would be making the decision before I made mine and it would make mine moot, and I believe in protection of my own judicial functions in this case I have the power to exclude the press and I will.
Joint Appendix ("JA") at A117. When the court directed members of the press to leave the courtroom, Cooper objected to the closing of the courtroom and asked the court for an opportunity to be heard through counsel. The court acknowledged Cooper's objection and request and said that it would allow Cooper an opportunity to be heard through counsel.
A short time later the court stopped the proceedings to permit another reporter to enter the courtroom. She identified herself as Virginia Inman, a reporter for the Wall Street Journal. She requested a hearing with counsel present in order to determine why the hearing was closed. The court denied her request.
Some time later attorneys for both Philadelphia Newspapers, Inc. ("PNI") and Dow Jones & Company, Inc. ("Dow Jones"), the publishers of the Inquirer and the Wall Street Journal, appeared to ask that the proceedings be opened. The court again stopped the proceedings to afford the newspapers an opportunity to be heard. Counsel for PNI urged the court to open the hearing or, failing that, to close only those parts of the hearing that involved the confidential information while allowing the rest of the hearing to remain open. The court rejected counsel's request and commented that "so far everything that we have been dealing with has been 'confidential.'" Id. at A137. When pressed by counsel to explain its exclusion of the public, the court stated:
I can see an over-riding interest of the Court in closing these proceedings because the information that is confidential, at this moment at least, is information which could possibly have adverse effects, but [the] very issue involved before me is whether or not the information should be revealed and whether or not it should be made public. That's the very issue before me.
If I were to permit the newspapers in here you would be usurping my function in deciding the case before I did by revealing the information, even though I [might] ultimately decide that it shouldn't be revealed.
Id. at A134-35. The court lated added that "the most intelligible explanation of my conduct is that it is a 'Catch-22.'" Id. at A140. The proceeding resumed with the public excluded.
Counsel for the newspapers immediately applied to this court for a Writ of Mandamus to compel the district court to reopen the hearing on the motions for preliminary injunction. This court denied the petition the next day.
By that time, the hearing was completed and the district court had rendered its decision.The court denied Cohen's motions to enjoin the convening of the December 8, 1982 stockholders' meeting on the ground that he lacked standing because he had retained no interest in Publicker after the Delaware County court invalidated the stock purchase agreement. The district court also held that "the order for confidentiality [remained] in force." Id. at A198. It later suggested, however, that it continued the order for confidentiality until it could decide the merits of that issue. It stated,
I have not reached the question of whether this is the type of thing, information that should be disclosed or that a Court can compel disclosure, whether this is something that is a sound good faith business decision of the directors, not to disclose it.
I have not reached those questions.
PNI filed a motion on December 20, 1982 for immediate access to the transcript of the December 7, 1982 hearing. Dow Jones joined in this motion the next day. Publicker countered with a Motion for Order Respecting Confidentiality to keep confidential portions of its memorandum of law that described the adverse effects that could attend disclosure of the sensitive information. The district court granted this motion in an order of January 6, 1983. Thus, while attorneys for PNI and Dow Jones were informed of the potential harmful effects of disclosure of the confidential information, they were ordered not to disclose this information to their clients.
In its memorandum of law in opposition to PNI's and Dow Jones' motions for immediate access to the hearing transcript, Publicker included a schedule which listed those portions of the transcript in question that were nonconfidential. By Publicker's own admission, over two-thirds of this transcript contains no confidential information. Approximately one-third of the transcript of the afternoon session is deemed by Publicker to be nonconfidential. Curiously, almost one-quarter of the transcript relating to the morning session is now labeled confidential. Yet, Publicker did not request that the court close the morning session.
In its second order of January 6, 1983, the district court directed Publicker to deliver to PNI and Dow Jones those portions of the transcript designated as nonconfidential. The order also denied the newspapers' motions for immediate access to the transcript in all other respects. The court did not issue an opinion to explain its order. Thus, the "sensitive" information and those portions of the December 7, 1982 hearing transcript relating to the "sensitive" information remained under seal with no explanation as to why the information should not be disclosed.
On January 14, 1983, PNI and Dow Jones filed this appeal from the district court's orders of December 7, 1982 and January 6, 1983. They maintain that the district court's closing of the December 7, 1982 hearing to the public and to the press deprived them of their common law and First Amendment rights of access to a civil trial without due process of law. They also claim that the district court's sealing of portions of the transcript of the December 7, 1982 hearing deprived them of their common law and First Amendment rights of access to the transcript of a civil trial without due process of law.
While this appeal was pending, and more than two months after we heard oral argument on appeal, Publicker filed a motion on November 17, 1983 to dismiss this case on grounds of mootness. Publicker supported this motion by informing this court of events that occurred after this appeal was taken that rendered confidentiality unnecessary.Because the confidential material will have been disclosed to Publicker's stockholders by the time this opinion is filed, we may discuss this material here without compromising Publicker's interests in this case.
The information in question concerns the production process of one of Publicker's foreign subsidiaries. This subsidiary produces scotch whiskey in Scotland. The subsidiary introduces an enzyme in its production of the grain alcohol used in its scotch whiskey to accelerate the fermentation process. The chairman of Publicker Industries, Stephen Harmelin, informed the district court that the use of this enzyme is not a health hazard and is not discernible chemically. To the best of his knowledge, this practice is engaged in by forty to fifty per cent of the scotch industry. Moreover, the English ...