We are all very used to (and very bored of) the on-going debate of what actually constitutes “the media” or “legitimate news.” In most instances, this sort of debate pits exclusive, Columbia-educated, “proper” journalists against those who have large on-line followings and eschew any association with a Dickensian-era newspaper. Or, as one story recently summarized it, “Corporate Media Freaks Out at Possibility of Breitbart, Infowars Being Allowed to Ask Questions [in White House Press Conferences],” full story here.
This debate has now, surprisingly, found its way into our arcane little bankruptcy world, with Murray Energy Corporation v. Reorg Research, Inc., 2017 NY Slip Op. 27036 (N.Y. County Sup. Ct., Feb. 14, 2017) (Edmead, J.). It started with a distressed company called Murray Energy establishing an on-line “data room” for bondholders and lenders to access confidential information posted by Murray Energy about its restructuring efforts and financial performance. For one to obtain the information, it had to sign a confidentiality agreement with Murray Energy, agreeing not to share the information with others. According to Murray Energy, the information in the data room contained “vital clues about Murray’s business strategy and overall financial condition.” Murray Energy was worried that the information, if widely disseminated, could help “potential hostile investors considering a possible takeover of Murray Energy (which can conceivably be orchestrated through a massive purchase of public debt).” Moreover, according to Murray Energy, dissemination of the secret data “would also give competitors in the coal industry an unfair advantage because it offers a detailed and concrete window into how Murray Energy is handling the ups-and-downs of the turbulent coal market.”
While Murray Energy was attempting to control its information flow, a company known as Reorg Research smelled a story. Reorg Research is a subscription-only service, gathering hard-to-find information on restructuring matters for its paid subscribers (at a rate of $30k-$120k/year, which we tightwads at The Bankruptcy Cave think is a lot!). Reorg Research touts itself as a media company, focusin on “market-moving intelligence, and independent analysis on the distressed debt and leveraged financed markets.” Importantly, Reorg Research subscribers must also agree, in writing, not to disseminate information learned from Reorg Research.
Anyway, back to Murray Energy. In August of 2016, Reorg Research published several in-depth stories about the distressed coalminer. The stories allegedly contained information that Murray Energy thought could only come from those who leaked data from a lender presentation Murray Energy had posted to its confidential data room for lenders and investors. Murray Energy sued Reorg Research, demanding to find out who was the canary. In response, Reorg Research relied on New York’s “Shield Law” (N.Y. Civil Rights Law § 79-h), which protects journalists from having to disclose confidential sources.
Protection by the Shield Law, however, requires one to be a “professional journalist,” which is defined by the Shield Law as
one who, for gain or livelihood, is engaged in gathering, preparing, collecting, writing, editing filming, taping or photographing of news intended for a newspaper, magazine, news agency, press association or wire service or other professional medium or agency which has as one of its regular function the processing and researching of news intended for dissemination to the public . . .
Here, because Reorg Research did not disseminate its stories to the public – and indeed, prohibited such dissemination through agreements with its subscribers – it could not rely on the Shield Law. Curiously, the Court took great pains to distinguish a ruling that the ratings agency Fitch would be covered by the Shield Law despite that Fitch stories / bond ratings required a subscription. Apparently Fitch made such items free to the public “for a limited time” on its website. There is no discussion of what this “limited time” is, and so we at the Bankruptcy Cave are left wondering what the real difference is between Fitch and other ratings agencies that require subscriptions, and Reorg Research, which appears to be identical (albeit perhaps more expensive). We are also concerned that the Court seemed to dispute that there is any public purpose served by companies like Reorg Research. Indeed, the Court’s characterization of Reorg Research’s customers as “vulture investors” (a low blow, to us) appears to the Bankruptcy Cave as an inappropriate pre-judging of who is “good media with good readers” and who is “illegitimate media with bogus readers.” Does this sound familiar to anyone? Courts, like candidates, really have no place judging what media is legitimate and what it not.
At the end of the day, we wish Murray Research would have simply issued a subpoena to the users of its data room. If one of them was the leak, we could avoid this entire, unsettling argument of what is a “professional journalist.”