Companies have the right to protect their trade secrets against public disclosure, while class action members (and the judges who must determine the fairness and adequacy of proposed class action settlements) have the right to know the potential value of their claims. At times, as seems to be the case with respect to the proposed $100 million class action settlement between Uber Technologies, Inc. and its drivers in California and Massachusetts in O’Connor v. Uber Technologies, Inc., 13 CV-03826 (N.D. Cal.), these respective rights can clash.
On the one hand, before he approves the proposed class action settlement, the United States District Court Judge in the O’Connor case is required by Rule 23(e) of the Federal Rules of Civil Procedure to determine whether the settlement is fair and adequate; information that appears to be relevant to this determination in the O’Connor case are such things as the most recent valuation of Uber as a company, as well as data on the number of miles logged by drivers, gross fares, and service fees on fares. Not surprisingly, on the other hand, and although Uber is keen to see the proposed class action settlement approved, Uber contends that all of this is trade secret information/data and should be shielded from public disclosure by means of sealed court records.
Interestingly, class counsel for the plaintiffs in the O’Connor case took no position on whether what Uber contends is trade secret information should be sealed. The District Court Judge, though, is not yet convinced of the propriety of sealing records containing such information and has ordered the parties’ counsel to “explain why the potential value of the claims should not be publicly disclosed given the importance of this information in the court’s determination of the fairness and adequacy of a proposed class action settlement.”Indeed, case law holds that the purpose of Rule 23(e) of the Federal Rules of Civil Procedure is to protect the unnamed members of a class from unjust or unfair settlements affecting their rights. Accordingly, before a court approves a class settlement, it must conclude that the settlement is fundamentally fair, adequate, and reasonable. Of central concern in this regard is a consideration of the plaintiffs’ expected recovery in the litigation balanced against the value of the settlement offer.
So where does a company such as Uber’s right to protect its trade secrets fit into the class action settlement approval process of Rule 23(e)? Uber says that right outweighs the presumption in favor of access to court records when the public disclosure of its trade secret information would cause it to suffer competitive harm. The question, then, is whether and how the court will balance the class members’ interests in the transparency of the information important to assessing the potential value of their claims against Uber’s interest in maintaining the secrecy of its financial data.
It is uncertain how this tug-of-war between transparency and secrecy will be resolved by the court. However, similar information in a class action lawsuit involving Uber rival Lyft, Inc. was disclosed as part of the class action settlement approval process in prior, separate litigation, and other courts likewise have denied motions to seal records containing alleged trade secret information when determining the fairness and adequacy of class action settlements. The sense here is that the court in O’Connor may permit the filing under seal of information pertaining to Uber’s most recent valuation but not information pertaining to miles driven, gross fares, and service fees on fares inasmuch as these latter data points are integral to the class members’ and the court’s assessment of the potential value of the plaintiffs’ claims and whether the proposed class action settlement is fair and adequate. It would not be altogether surprising, though, if the court denied the request to seal records disclosing Uber’s most recent valuation, since $16 million of the proposed $100 million class action settlement is contingent on Uber’s going public and its valuation continuing to grow, i.e., Uber’s valuation increasing one and one-half times from its December 2015 financing valuation within the first year of an initial public offering.