New York’s Appellate Court Reaffirms Broad Scope of Shield Law Protects Niche Publication from Forced Disclosure of Confidential Sources

DWT Media Law September 20, 2017 Comments Off on New York’s Appellate Court Reaffirms Broad Scope of Shield Law Protects Niche Publication from Forced Disclosure of Confidential Sources
New York’s Appellate Court Reaffirms Broad Scope of Shield Law Protects Niche Publication from Forced Disclosure of Confidential Sources

In a victory for newsgathering, a New York appellate court struck down an order compelling Reorg Research Inc., a niche publication covering the distressed-debt and leveraged finance markets, to disclose the names of confidential sources who had allegedly acted in violation of their non-disclosure obligations to the petitioner. In re Murray Energy Corporation v. Reorg Research, Inc., Index No. 157797/16, 2017 WL 2977781, 2017 N.Y. Slip Op. 05688 (N.Y. App. Ct. 1st Dep’t, July 13, 2017).

The case reaffirms New York’s “long tradition, with roots dating back to the colonial era, of providing the utmost protection of freedom of the press,” protection that has been recognized as “the strongest in the nation.” Matter of Holmes v. Winter, 22 N.Y.3d 300, 307, 310 (2013), cert. denied, 134 S.Ct. 2664. One manifestation of this strong public policy is New York’s Shield Law, N.Y. Civ. Rights Law § 79-h(b), which protects “professional journalists,” whom the statute defines as:

“[O]ne 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 functions the processing and researching of news intended for dissemination to the public… .”

N.Y. Civ. Rights Law § 79-h(a)(6). Provided that the individual is a “professional journalist,” the statute further provides an “[a]bsolute protection” for confidential sources.

Background

Appellant Reorg Research is a news organization that provides its subscribers with access to breaking news, market-moving intelligence, and independent in-depth analysis on the distressed-debt and leveraged finance markets involving such far-reaching subjects as Puerto Rico’s debt. Petitioner-Appellee Murray Energy Corp. is one of the largest players in the troubled U.S. coal market, employing more than 6,000 people in six states (and a serial litigant against the media who cover it, most recently suing The New York Times over an editorial and HBO over Last Week Tonight with John Oliver). Although a privately held company, Murray Energy has issued approximately $3 billion in debt bonds that are publicly traded. On a quarterly basis, Murray Energy holds calls to present its quarterly results, projections, and any other developments that may impact its financial health to investors, potential investors, and others.

This proceeding concerns two articles published by Reorg Research, which reported on Murray Energy’s efforts to reduce its debt burden, stave off bankruptcy, and avoid hundreds of layoffs. Both articles, prompted by press releases announcing a favorable renegotiation of a collective bargaining agreement with the United Mine Workers, relied in part on information from sources cited in the story who agreed to speak with the Reorg Research reporter, Max Frumes, on the condition that he promise not to disclose his or her identity.

For both articles, Frumes sought comment from Murray Energy and, in connection with the second article, Murray Energy provided a written statement that expressly confirmed the information in the article and expressed Murray Energy’s satisfaction with the new agreement.

On Sept. 16, 2016, Murray Energy filed a petition for pre-action disclosure pursuant to Rule 3102(c) of the New York Civil Practice Law and Rules (the “petition”), seeking to compel Reorg to disclose to Murray Energy the identities of its reporter’s confidential sources in alleged furtherance of a breach of contract action. In the petition, Murray Energy alleged that Reorg Research’s sources could not have gained access to the information they provided unless they had signed a confidentiality agreement.

Reorg Research raised New York’s Shield Law, N.Y. Civ. Rights Law § 79-h(b), Article I § 8 of the New York State Constitution and the First Amendment, among other grounds, as defenses to the petition, and submitted factual affirmations and expert declaration from Paul Steiger, former managing editor of The Wall Street Journal, and founding editor-in-chief, CEO, and president of ProPublica, describing and analyzing its business model.

Murray Energy took the position that the shield law was limited to publications that are made available to the “general public” and that Reorg Research could not meet this “requirement.” Murray Energy thus argued that Reorg Research could not assert the privilege, pointing to (1) the size and composition of Reorg’s subscriber base, which comprises 375 unique institutional subscribers with more than 9,000 active individual users; (2) the cost of subscriptions, which can exceed $100,000, depending on the size of the organization; (3) the highly specialized subject matter; and (4) the fact that Reorg Research posts much of its content behind a paywall and places certain restrictions on the dissemination of its content to non-subscribers—although limited personal distribution and excerpting of “brief quotations” are expressly permitted. The Manhattan Supreme Court (Edmead, J.) sided with Murray Energy, ordering Reorg to produce the names of its sources and any newsgathering materials.

Reorg Research appealed. A number of prominent news organizations—including Bloomberg L.P., Dow Jones & Company Inc., The Economist Newspaper Limited, Euromoney Institutional Investor PLC, The Financial Times LTD, Intelligence Press Inc., Politico LLC, Providence Publications LLC, Reuters America LLC, and Sporting Goods Intelligence Inc.—filed an amici curiae brief in support of Reorg’s position.

These news organizations “either originally entered the media landscape focused on a particular subset of readers and/or publish at least one subscription only publication or premium-content service on a specialized topic.”

Appellate Court Ruling

On July 13, 2017, the New York Supreme Court, Appellate Division, First Department, unanimously reversed on the facts and the law and dismissed the petition. Of particular importance, the First Department recognized that the features upon which Murray Energy relied are “not uncommon among, and in fact are essential to the economic viability of, specialty or niche publications that target relatively narrow audiences by focusing on a topic not ordinarily covered by the general news media—such as the debt-distressed market”—a position advanced by Reorg Research’s expert and corroborated by numerous prominent news organizations who served as amici curiae before the appellate court.

Moreover, the court recognized that highly specialized publications offer an important public benefit. Reorg’s clients include institutions and financial advisors that control trillions of dollars of pension funds and endowments, law firms, investment banks, and many others who are in the best position to digest and use this information, stating that “[R]espondent and amici argue persuasively that the public benefits secondarily from the information that respondent provides to its limited audience, because that audience is comprised of the people who are most interested in this information and most able to use and benefit from it. More importantly, given the substantial investment required to unearth this information and the limited number of interested readers, the alternative is not broader coverage, but no coverage at all.”

The court also emphasized the fact that Reorg Research’s editorial staff is solely responsible for deciding what stories to cover. Numerous other cases applying both the shield law and federal reporter’s privilege have focused on a publication’s exercise of independence and editorial control, including whether the publication accepts compensation for, or allows subscribers to dictate, reporting on specific topics—an approach that the appellate court adopted here.

Perhaps most importantly, this case represents an important affirmance of New York’s commitment to the freedom of the press. The court expressly acknowledged that the shield law is intended to encourage newsgathering by ensuring that confidential sources can rely on a promise “that their identities will not become public.” The court thus rejected the trial court’s approach, which attempted to condition protection on a highly subjective analysis of the publication’s reach and business model. As the appellate court explained:

“To condition coverage on a fact-intensive inquiry analyzing a publication’s number of subscribers, subscription fees, and the extent to which it allows further dissemination of information is unworkable and would create substantial prospective uncertainty, leading to a potential ‘chilling’ effect.”

Davis Wright Tremaine LLP attorneys Laura R. Handman, James Rosenfeld, Joanna E. Summerscales, and Jeremy Chase represent Reorg Research in connection with the appeal. Reorg Research was represented in the lower court by Matthew Oliver and Jamie Gottlieb Furia of Lowenstein Sandler LLP. Michael Berry of Levine Sullivan Koch & Schulz represented amici curiae. Jeffrey J. Chapman of McGuire Woods was of counsel for respondent Murray Energy.

Murray Energy has filed a motion seeking reargument and/or permission to appeal to the Court of Appeals.
This article originally appeared in the MLRC July 2017 Media Law Letter.

Joanna E. Summerscales is an associate based in New York.
Laura R. Handman is partner and co-chair of DWT’s appellate practice, based in Washington, D.C., and New York.
James Rosenfeld, based in New York, is partner and co-chair of DWT’s media practice group.

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