When Confidential is Not Confidential - Identities of Confidential Sources of Distressed Debt Reporter are Not Subject to NY Shield Law

April 17, 2017

There is the general expectation that when a source discloses information to a reporter on a confidential basis, the source will be protected and their identity and communications cannot be forced to be disclosed. This is especially true under New York law, where safeguarding the anonymity of those who provide information in confidence is one of the core principles of New York’s journalistic privilege, including New York’s Shield Law. 

But a New York State trial court recently held that the New York Shield Law does not prevent disclosure of confidential sources obtained and used by reporters of Reorg Research Inc. (“Reorg Research”), which provides information about distressed businesses to a small group of high-end subscribers. Murray Energy Corp. v. Reorg Research Inc., held that the New York Shield Law (Civil Rights Law § 79-h) (the “Shield Law”) only protects confidential sources where the information is provided to “professional journalists” who disseminate information to the general public. When information is disclosed on a confidential basis to subscriber-only services, such as Reorg Research, the identity of the disclosing party is not protected from disclosure given that such information “does not involve dissemination to the public.” Accordingly, the identity of the disclosing party may be exposed publicly. 

The Murray decision raises three distinct implications: First, a “news” reporting service that is not protected by the Shield Law may be compelled, by court order to disclose its “confidential” sources. Second, if the disclosing party is subject to a Non-Disclosure Agreement (“NDA”), the disclosing party may be identified publicly and subject to legal action for breaching the NDA. Third, the government may be able to obtain the identity of a disclosing party in connection with any insider trading investigation. 

The Decision 

As described in the Court’s opinion, Reorg Research provides its subscribers with information relevant to their investments and potential investments before the public. At the time of the decision, Reorg Research had approximately 375 subscribers including investment advisors and investment funds that advise or manage trillions of dollars in assets. All information received by Reorg Research subscribers is withheld from the public by confidentiality agreements signed by Reorg Research subscribers. Thus, when Reorg Research posts a story, it is providing it only to its exclusive subscribers. 

Some Reorg Research subscribers had an interest Murray Energy Corporation (“Murray”). One of Reorg Research’s “reporters” called sources for information related to Murray, promising to keep their names confidential. The sources disclosed information, some of which was included in alerts that were emailed to Reorg Research subscribers. Murray believed that the sources were investors who were subject to NDAs with Murray. Murray alleged that these investors breached their NDAs. Murray requested Reorg Research to identify its sources and Reorg Research refused. 

Murray then filed a motion for pre-action discovery in order to learn the sources’ identities. In opposition, Reorg Research argued that the Shield Law protected it from having to disclose its sources. The court held that Reorg Research was required to disclose its sources. It found that Reorg Research was not protected by the Shield Law as its business does not involve dissemination of information to the public. 

The court focused on the fact that Reorg Research’s business benefits only a small group of high-end subscribing investors. The court rejected attempts to compare Reorg Research to subscription models of the New York Times and the Wall Street Journal, noting that those newspapers do not charge exorbitant fees, are open to members of the general public, and their stories become part of the public record. In contrast, Reorg Research strictly keeps its stories away from the general public. Thus, the press would not be better protected by an extension of its freedoms to companies, like Reorg Research, that do not carry out the vital function of informing the public. Reorg Research has appealed the decision. 

Final Thought 

For now, disclosing confidential information provided under an NDA to subscriber-based reporting services may not be protected under journalistic privileges such that the identity of the disclosing party may be discoverable and expose him or her to damages for breach of the NDA. 

Read the opinion »

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