Companies in product liability litigation often request Fed. R. Civ. P. 26(c) protective orders in order to protect their trade secrets and confidential information from being leaked to the public. When a protective order is breached, and a plaintiff inadvertently leaks this information, a court must determine whether to impose sanctions, and if so, must determine under what authority it can do so.

These issues were prominent in a recent decision in the Fifth Circuit Court of Appeals: Smith & Fuller, P.A. v. Cooper Tire & Rubber Co., 11-20557 (5th Cir. June 21, 2012). Here, Hugh Smith and his law firm represented a family in a products lawsuit against Cooper Tire & Rubber Company. That case resulted in a jury verdict for Cooper in September 2010.

Prior to trial, the district court entered a protective order to protect Cooper’s trade secrets that were disclosed during discovery. In August 2010, prior to the jury’s verdict, Smith’s law firm inadvertently disseminated Cooper’s confidential information to personal injury lawyers at a conference sponsored by Attorneys Information Exchange Group, Inc., a trial lawyers’ organization whose members litigated complex product liability cases nationally. Earlier, Smith’s firm had agreed to serve as the organization’s clearinghouse for information concerning accidents involving Cooper’s tires.

When the leak was discovered, Cooper moved to enforce the order and to levy sanctions against Smith. The court ordered Smith to correct its violation, and later held that although the firm had inadvertently leaked the information, sanctions should still be imposed against it, as the firm was not careful enough in protecting Cooper’s information. Given that Smith had already been sanctioned in another case against Cooper for willfully violating a protective order, the district court ordered sanctions pursuant to Fed. R. Civ. P. 37(b) for almost $30,000 in order to deter future violations. Rule 37(b) authorizes sanctions for failure to comply with court orders; the rule applies when a party fails to obey an order to provide or permit discovery.

Smith appealed the decision to the Fifth Circuit, arguing that another federal appellate court, the 11th Circuit, had held that courts lacked the authority to impose Rule 37(b) sanctions for violations of Rule 26(c) protective orders. Further, Smith argued that because its disclosure was inadvertent, the court was limited to the order’s “Inadvertent Disclosure” provision.

The court rejected both arguments. First, it disagreed with the 11th Circuit’s ruling; the Fifth Circuit opined that amendments to Rule 37(b) going back to 1970 had broadened it to support sanctions for violation of Rule 26(c) protective orders. Further, the order here – with its rules governing what could constitute confidential material produced in discovery – “provide[d] and permit[ted] discovery” of materials within the meaning of Rule 37(b).

Second, the court disagreed with Smith’s argument that the order’s “Inadvertent Disclosure” provision limited the court’s ability to impose sanctions. Rule 37(b) authorized courts to impose sanctions for breaches of protective orders in order to deter future discovery abuse. Here, the court held that the district court was within its right to impose sanctions against Smith in order to deter future bad acts, as any lesser penalty might not have done so. As a result, the court upheld the sanctions against Cooper.

The Fifth Circuit’s decision to allow the lower court to reprimand a repeat offender of Rule 26(c) protective orders is a good thing for product manufacturers. The ruling sends a strong message to the plaintiff’s bar that it must be careful when handling its adversaries’ most sensitive information.