Court Opinion

ID: 6347211
Source: CourtListenerOpinion
Date Created: 2022-06-06 14:01:48.602285+00
Date Added: 2024-06-11T13:26:00.489087
License: Public Domain

SUPERIOR COURT
                                  OF THE
                            STATE OF DELAWARE
PAUL R. WALLACE                                              NEW CASTLE COUNTY COURTHOUSE
     JUDGE                                                    500 N. KING STREET, SUITE 10400
                                                               WILMINGTON, DELAWARE 19801
                                                                       (302) 255-0660

                          Date Submitted: May 19, 2022
                           Date Decided: June 6, 2022

Theodore A. Kittila, Esq.                          Eric M. George, Esq.
James G. MacMillan, III, Esq.                      Kim S. Zeldin, Esq.
HALLORAN FARKS + KITTILA LLP                       BROWNE GEORGE ROSS LLP
Wilmington, Delaware                               Los Angeles, California

Robert K. Beste, Esq.                              Marvin S. Putnam, Esq.
Jason Z. Miller, Esq.                              Jessica Stebbins Bina, Esq.
Smith, Katzenstein & Jenkins LLP                   R. Peter Durning, Jr., Esq.
Wilmington, Delaware                               LATHAM & WATKINS LLP
                                                   Los Angeles, California

      RE:    Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
             C.A. No. No19C-11-092

Dear Counsel:

      This Letter Order addresses the Defendants’ Exceptions to the Special

Master’s May 6, 2022 Ruling on Surf’s Up Motion to Maintain Highly Confidential

Designations (D.I. 210). For the reasons explained below, the Exceptions are

OVERRULED and the Special Master’s Ruling is ADOPTED.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 2 of 17
               I. FACTUAL AND PROCEDURAL BACKGROUND

    A. THE CONFIDENTIALITY ORDER

        After the Special Discovery Master entered this case in March 2021,1 the

parties stipulated to a Confidentiality Order in April 2021.2

        The Confidentiality Order allows a Producing Party to designate any

Discovery Material as “Confidential” if such party in good faith believes that such

Discovery Material contains non-public, confidential, proprietary, or commercially

sensitive information and that good cause exists for confidential treatment. “Good

cause” for confidential treatment exists only if the public interest in access to Court

proceedings is outweighed by the harm that public disclosure of sensitive, non-

public information would cause.

        Alternatively, any Producing Party may designate any Discovery Material as

“Highly Confidential” if such party in good faith reasonably believes that disclosure

of the Discovery Material other than as permitted pursuant to Paragraph 6 of the

Order is substantially likely to cause injury to the Producing Party and that

designation of such Discovery Material as Confidential Discovery Material would

1
  D.I. 88; see also Order of Reference to Special Discovery Master (D.I. 96); Entry of
Appearance of Michael A. Weidinger (D.I. 120).
2
    Confidentiality Order (D.I. 127).
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 3 of 17
be insufficient to protect the interests of the Producing Party. Paragraph 6 provided

the limited classes of individuals to whom Highly Confidential Discovery Material

may be disclosed. In effect, Highly Confidential functions as an “attorneys’ eyes

only” designation, precluding disclosure to the parties’ principals and limiting it to

counsel (including in-house counsel) and those working with such counsel on the

case, among others necessary for the normal prosecution of litigation.

        Finally, the Order provided that Superior Court Civil Rule 5(g) shall govern

all challenges to a Party’s designation of documents or information as Confidential

or Highly Confidential. Under Civil Rule 5(g), good cause must be shown to

maintain documents under seal.3

    B. CURRENT DISCOVERY DISPUTE

        On March 11, 2022, Defendants Virgin Fest, LLC, VFLA Eventco, LLC, and

KSD Ownco, LLC challenged “plaintiffs’ and counterclaim defendants’ designation

of any and all documents as highly confidential under the Court’s April 21, 2021

confidentiality order.”4        In response, Plaintiffs and Counterclaim Defendants

(collectively, Surf’s Up”) filed a Motion to Maintain Highly Confidential

3
    See Del. Super. Ct. Civ. R. 5(g).
4
    Challenge to Designation of Documents as Highly Confidential (D.I. 199).
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 4 of 17
Designations on March 22, 2022.5 The Special Master heard argument on April 8,

2022.6

          On May 6, 2022, the Special Master issued a written decision resolving the

Motion.7          As background, the Special Master explained that Surf’s Up had

previously sought to redact the names of its investors from documents it produced

to Virgin Fest, which the Special Master rejected in favor of allowing Surf’s Up to

designate the material as it saw fit in good faith in accordance with the

Confidentiality Order—a ruling the Court upheld over Surf’s Up’s objections.8 With

exceptions described as inadvertent mistakes due to the large volume of production,

Surf’s Up designated documents disclosing the identity of its investors as Highly

Confidential.        Virgin Fest’s challenge sought to re-classify the documents as

Confidential, which would allow them to be shared generally within the Virgin Fest

organization including its “directors, officers, employees, general partners, and

limited partners of the Parties, or any subsidiary or affiliate thereof.”9

5
    Pls.’ Mot. to Maintain Highly Confidential Designations (D.I. 200).
6
   Special Master Ruling on Pls.’ Mot. to Maintain Highly Confidential Designations at 1 (D.I.
209) (hereinafter, the “Special Master’s Ruling”).
7
    Id.
8
   See id. at 2 (citing Surf’s Up Legacy Partners LLC v. Virgin Fest, LLC, 2021 WL 5049459
(Del. Super. Nov. 1, 2021)).
9
    Id. at 2–3.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 5 of 17
           The Special Master summarized the parties’ contentions. Surf’s Up argued it

needed to maintain the Highly Confidential designation because it reasonably

believed Virgin Fest’s management “would interfere with or usurp Surf’s Up

relationship with its investors.”10 Too, Surf’s Up blamed Virgin Fest for stirring up

other litigation against it that had been filed by its investors where Virgin Fest had

knowledge of the identities of certain of those investors.11 Conversely, Virgin Fest

argued that Surf’s Up failed to meet its burden to demonstrate that disclosure would

be “substantially likely to cause injury” and that a “Confidential” designation would

be sufficient.12

           The Special Master determined that, in order for Surf’s Up to establish good

cause under Civil Rule 5(g), “the Court must be satisfied that a substantial likelihood

exists that injury may occur and that Confidential designations are insufficient.”13

In determining whether Surf’s Up met its burden, the Special Master explained he

did not credit Surf’s Up claim that Virgin Fest “allegedly stirred up and will continue

to stir up other litigation by other investors against Surf’s Up if Virgin Fest gains

10
     Id. at 3.
11
     Id. at 4.
12
     Id.
13
     See id. at 5.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 6 of 17
access to the investor list.”14 Still, the Special Master held Surf’s Up met its burden

of showing good cause and granted Surf’s Up motion:

        [I]t is undoubtedly the case that the identity of investors or investor lists
        of the type designated Highly Confidential by Surf’s Up is the proper
        subject of confidential treatment under the Confidentiality Order.
        Moreover, Virgin Fest is a potential competitor for investors in the
        businesses in which it and its principals and Surf’s Up engage. There
        has already been a history of accusations of poaching of investors
        among the parties’ principals. Surf’s Up concern is not unfounded, but
        arises in a hotly contested matter with fraud accusations running both
        ways and demonstrable animus flowing. Once the investor names are
        known, there is no going back. I am convinced that Highly Confidential
        designations are warranted. The result would be different if the investor
        lists belonged to the Surf’s Up entities. The Surf’s Up entities are
        defunct and therefore not in competition for the investors’ funds and
        will not be harmed by any interference with the investor relations that
        might result from the disclosure widely within Virgin Fest. But, when
        questioned at the hearing on the subject, counsel advised the lists
        “belong to Mr. Gordon and Mr. Wolkov. They are their individual
        lists”. To protect their interest in the confidentiality of their private
        investor lists, Surf’s Up may maintain the current designation.15

Furthermore, the Special Master rejected Virgin Fest’s suggestion that “the use

restriction within the Confidentiality Order is sufficient because it precludes use

outside the litigation that Surf’s Up is worried about, poaching and interfering with

investor relations, even for documents designated only ‘Confidential.’”16

14
     Id. at 5–6.
15
     Id. at 6–7 (internal citations omitted).
16
     See id. 8–9.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 7 of 17
        Virgin Fest filed its Exceptions to the Special Master’s May 6th Ruling.17 And

Surf’s Up has now filed its opposition.18

                               II. STANDARD OF REVIEW

        A Special Master’s Report is subject to de novo review by this Court.19

                                       III. ANALYSIS

        After careful de novo review of the Special Master’s Ruling, the Court adopts

it in whole.

        The first issue is the standard to be applied in reviewing Virgin Fest’s

challenge to the Highly Confidential designation and Surf’s Up Motion.                 The

Confidentiality Order allows Producing Party to designate any Discovery Material

as Highly Confidential if such party in good faith reasonably believes that disclosure

of the Discovery Material is substantially likely to cause injury to the Producing

Party and that designation of such Discovery Material as Confidential would be

insufficient to protect the interests of the Producing Party. All challenges to a party’s

designation of documents or information as Confidential or Highly Confidential are

governed by Civil Rule 5(g); that rule provides that good cause must be shown for

17
     Virgin Fest’s Exceptions to the Special Master’s May 6, 2022 Ruling (D.I. 210).
18
     Pls.’ Answering Br. in Opp. to Virgin Fest’s Exceptions (D.I. 215).
19
     Del. Super. Ct. Civ. R. 122(c).
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 8 of 17
the Court to order filings or documents be maintained under seal. From the

Confidentiality Order and Civil Rule 5(g), the Special Master correctly distilled the

applicable standard: Surf’s Up must show good cause to maintain the designation of

its investors’ identities as Highly Confidential, and to show good cause, Surf’s Up

must show that disclosure of the investors’ identities is substantially likely to cause

injury to Surf’s Up and that designating their identities as Confidential would be

insufficient to protect Surf’s Up’s interests.20

       As support for its Motion, Surf’s Up submitted declarations of counterclaim

defendants Bryan Gordon and Seth Wolkov (collectively, “Declarants”) under

10 Del. C. § 3927.21 Mr. Gordon and Mr. Wolkov are Surf’s Up former CEO and

20
     Surf’s Up maintains that it can meet its good cause burden simply by having a good faith
reasonable belief that disclosure is substantially likely to cause injury and that Confidential
designations are insufficient. See Special Master’s Ruling at 4–5; Pls.’ Answering Br. in Opp. to
Virgin Fest’s Exceptions at 2 n.2. The Special Master correctly rejected Surf’s Up position. This
Court has recently had occasion to review the “fundamental right [of United States’ citizens] . . .
to an open court system,” a principle that “translates into a presumption that the press and public
have a common law right of access to judicial proceedings and court records.” See Optical Air
Data Sys., LLC v. L-3 Commc’ns Corp., 2020 WL 710264, at *1 (Del. Super. Ct. Feb. 7, 2020)
(internal citations omitted). “One manifestation of the common law right of access is Superior
Court Civil Rule 5(g),” under which the “default position” is public accessibility of filed
documents. See id. (internal citations omitted). In light of these principles, it would not be
appropriate to seal court documents based solely on one party’s belief that such a seal is necessary,
even if the party holds that belief in good faith. “[T]hat good faith belief, although critical, will
not carry the day alone without convincing the Court such reasonable belief is well-founded and
the information requires Highly Confidential designations.” See Special Master’s Ruling at 5.
21
    See Pls.’ Mot. to Maintain Highly Confidential Designations, Exs. A & B. Because the
declarations are substantively identical, the Court will hereafter cite only to
Exhibit A—Mr. Gordon’s declaration.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 9 of 17
President, respectively. Declarants explained that they serve “dozens of private

investors, mostly high-net-worth individuals and family offices.”22 Many of these

investors “guard their privacy carefully—this is proprietary information.”23

Declarants say their “livelihood is dependent on those relationships” and the

relationships will “likely” be lost if their contact information is compromised.24

Declarants also claim that disclosure of this information to Virgin Fest would violate

their subscription agreements with their investors, exposing Declarants to litigation

from investors that would harm Declarants financially and reputationally.25

        Declarants averred that the investors’ identities are “known to very few people

and were not even disclosed to KAABOO’s board, including then-board member

Jason Felts, who represented Virgin Fest”—Declarants’ “competitor”26—“and who

also served as KAABOO’s Chief Marketing Officer.”27 Virgin Fest, now under the

control of Jason Felts and his business partner Mark Hagle, “wants very badly to

know the identities of Surf’s Up’s investors so that it can drive a wedge into those

22
     See id., Ex. A at ¶ 2.
23
     Id., Ex. A at ¶ 6.
24
     See id., Ex. A at ¶ 7.
25
     Id., Ex. A at ¶ 9.
26
     Id., Ex. A at ¶ 6.
27
     Id., Ex. A at ¶ 11.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 10 of 17
relationship.”28 Declarants explain there is a “history” of bad blood between

themselves and Felts, who “has accused [them] of poaching one of Virgin Fest’s

potential investors, William Hutchinson, and his company, Dunhill Partners.”29

“After Hutchinson made an investment in the KAABOO Texas festival directly

rather than into Virgin Fest, Felts cried foul, accusing us of ‘circumventing’ Virgin

Fest’s relationship with Dunhill Partners.”30

        The Court finds that Surf’s Up has met its burden of showing good cause to

maintain the Highly Confidential designation for the identity of its private

investors.31

        First, Surf’s Up has established that disclosure of the investors’ identities is

substantially likely to cause injury to Declarants. Declarants have sworn under the

penalties of perjury that their livelihoods depend on the long-standing relationships

of trust and confidence they maintain with their investors and that those relationships

would be lost if the investors’ identities were disclosed. Indeed, disclosure to Virgin

Fest is particularly likely to cause them substantial harm. Declarants not only

28
     Id., Ex. A at ¶ 12.
29
     Id., Ex. A at ¶ 13.
30
     Id. at ¶ 13.
31
    It appears undisputed that the investors’ identities constitute “non-public, confidential,
proprietary, or commercially sensitive information”—a prerequisite for any confidential treatment
under the Confidentiality Order. See Confidentiality Order at 2.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 11 of 17
compete with Virgin Fest for the same class of investors, but also have a clear history

of personal animosity with certain principals of Virgin Fest. The Special Master

correctly noted that a different result may obtain if the investor lists belonged to the

Surf’s Up entities themselves, which are defunct, not in competition for the

investors’ funds, and unlikely to suffer any meaningful injury if the investor lists

were disclosed widely with Virgin Fest.32 But the investor lists belong to Mr.

Gordon and Mr. Wolkov personally, both of whom continue to serve the investors

and stand to suffer substantial harm if their identities were widely disclosed within

Virgin Fest.

           Second, Surf’s Up established that designating the investors’ identities as

Confidential would be insufficient to protect its interests.           A Confidential

designation would allow their identities to be disclosed generally within Virgin Fest,

including among the principals discussed previously. And as the Special Master

correctly noted, “[o]nce the investor names are known, there is no going back.”33

Underscoring the need for Highly Confidential treatment is the fact that the

investors’ identities weren’t ever disclosed to KAABOO’s board—even before the

relationship between Surf’s Up and Virgin Fest soured, Declarants were doing their

32
     See Special Master’s Ruling at 7.
33
     Id.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 12 of 17
utmost to maintain confidentiality.            Designating the information as Highly

Confidential—“attorneys’ eyes only”—is therefore appropriate under the specific

facts of this dispute.

           Virgin Fest objects that “Surf’s Up speculation that Virgin Fest’s principals

might interfere with its relationship with those investors does not establish that

release of the investor identities to Virgin Fest is ‘substantially likely to cause

harm.’”34 Virgin Fest goes further: “Surf’s Up offered no facts showing a substantial

likelihood of injury.”35 Not so.

           Surf’s Up submitted particularized facts regarding Declarants’ confidential

relationship with their investors and the reasons why general disclosure to Virgin

Fest is particularly likely to damage those relationships. To be sure, Surf’s Up

warnings of future harm involve an element of speculation. But all averments of

future harm, by necessity, do. Under these facts, Surf’s Up has said enough.

           Virgin Fest claims the Court has already made a “finding” that Surf’s Up can

offer only “unsupported speculation,” pointing to the Court’s Letter Order from

November 2021.36          Virgin Fest goes a bit too far here. In its November 2021

34
     Virgin Fest’s Exceptions at 2.
35
     Id.
36
     See id. at 2–3 (citing Surf’s Up, 2021 WL 5049459 at *3).
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 13 of 17
decision, the Court rejected Surf’s Up request that it be allowed to redact completely

the names and identifying information of its investors in documents it agreed to

produce to Virgin Fest. The Court explained that the “alleged harm that Gordon and

Wolkov will suffer should the identities of the investors be revealed to the public”

was “no reason to withhold discoverable information” from Virgin Fest under

Delaware’s rules of discovery.37 The appropriate solution to Surf’s Up concerns was

not to withhold the information altogether, but rather for Surf’s Up to “avail itself to

the protections of the Confidentiality Order”38—an Order that was “Surf’s Up’s

idea” in the first instance.39 Thus, the Court ruled only that Surf’s Up’s allegations

of future harm were not grounds to bar Virgin Fest from discovering their identities.

Whether Surf’s Up’s allegations are sufficient to warrant protection of the now-

produced discovery under the Confidentiality Order is a different question. The

Court expressly said as much when it invited Virgin Fest to “challenge Surf’s Up’s

designation [under the Confidentiality Order] if Virgin Fest believes it lacks

merit.”40

37
     See id. at 2.
38
     See id. at 3.
39
     Id.
40
     Id.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 14 of 17
        Similarly, Virgin Fest claims Surf’s Up offers mere speculation to support its

claim that a Confidential designation would be insufficient. According to Virgin

Fest, a Confidential designation would address Surf’s Up concerns because it would

require Virgin Fest to use the information “solely for purposes of this Litigation . . .

and not for any other purpose.”41 In response to this argument, the Special Master

correctly noted that the parties stipulated to a two-tier Confidentiality Order and

“Virgin Fest therefore did not object to the additional burdens that Highly

Confidential designations might impose when it agreed to such a form of order.”42

In other words, even if initially resisted, the parties came to recognize that discovery

may require the production of information of such sensitivity that the only means of

safeguarding it would be to prevent certain individuals from viewing it altogether.

“[I]f the use limitation protection that is contained in a single-tier order were always

sufficient, then parties and the Court would never enter two-tier stipulations or

orders in the first place. Surf’s Up has limited its Highly Confidential designations

to a single, narrow category of information—the identity of its private investors and

it has shown good cause to maintain the use of such designations.”43 Simply put,

41
     See Virgin Fest’s Exceptions at 4–5 (citing Confidentiality Order at 10).
42
     See Special Master’s Ruling at 8–9.
43
     Id. at 9.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 15 of 17
Mr. Gordon and Mr. Wolkov will not be required to make their most sensitive

proprietary information available to their competitors in the context of a “hotly

contested matter with fraud accusations running both ways and demonstrable animus

flowing.”44

        Finally, Virgin Fest warns that adopting the Special Master’s decision “will

cause more work for the Court in the form of unnecessary litigation and discovery

disputes.”45 As if needed at this point, Virgin Fest reminds the Court that it has

“consistently objected and maintained that no information is worthy of [Highly

Confidential] designations.”46         Although Virgin Fest “agreed to a two-tiered

approach because it was free to challenge any Highly Confidential designations,”

the Special Master’s Ruling effectively “used that agreement against Virgin Fest.”47

According to Virgin Fest, “accept[ing] the Special Master’s use of an agreement to

a two-tiered order against a party who loudly and strenuously objected to any Highly

Confidential designations and a second tier in the order . . . would be encouraging,

44
     Id. at 6.
45
     Virgin Fest’s Exceptions at 7.
46
     Id. at 8.
47
    Id. at 8–9 (citing Special Master’s Ruling at 9 (“Here, however, the parties stipulated to the
use of a two-tier form order to protect Highly Confidential information. Virgin Fest therefore did
not object to the additional burdens that Highly Confidential designations might impose when it
agreed to such a form of order.”)).
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 16 of 17
and likely forcing, litigants to always dispute the type of confidentiality that is

appropriate for a case from the outset, causing undue burden to the Court.”48

           Not if the parties—and their counsel—are reasonable from the outset.

           Neither the Special Master in the first instance, nor the Court, has or will used

Virgin Fest’s agreement against it. But both are applying the framework the parties

together (even, if begrudgingly) constructed.

           Virgin Fest has always known that Surf’s Up’s primary reason for seeking a

two-tier Confidentiality Order was its belief “that the identity of [Surf’s Up’s]

investors requires a second tier.”49 Virgin Fest told Surf’s Up it did not believe a

two-tier Confidentiality Order would be “necessary or appropriate.”50 Nevertheless,

Virgin Fest agreed to “put as much of this aside as possible and move forward.”51

True, Virgin Fest did acquiesce to a two-tier Confidentiality Order with the warning

to Surf’s Up that it “anticipate[d] challenging any designations of material as highly

confidential.” So Virgin Fest’s was well aware that the Court could find agree

particular discovery material warrants that very designation both parties—for each’s

own reasons—decided to put on the table.

48
     Id. at 9.
49
     Virgin Fest’s Answering Br. in Response to Surf’s Up’s Exceptions, Ex. C at 2 (D.I. 158).
50
     Id.
51
     Id.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. N19C-11-092
June 4, 2022
Page 17 of 17
      And even without such agreement, if left to the Court’s own device, the two-

tiers would have been imposed as there is good cause under the specific facts

presented here for such treatment. Thus, the Court hopes the parties will use the

procedures devised here reasonably. The Court is confident that future parties will

not be dissuaded from engaging such where it makes sense in their cases.

                               IV. CONCLUSION

      For the foregoing reasons, the Court agrees with the Special Master, and

ADOPTS the Special Master’s Ruling on Surf’s Up Motion to Maintain Highly

Confidential Designations.    And, therefore, the Court DENIES Virgin Fest’s

Exceptions to the Special Master’s Ruling.

                                                   IT IS SO ORDERED.

                                                   Paul R. Wallace, Judge

Original to Prothonotary

cc: All Counsel via File and Serve