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Judge Blocks DXC Technology, HPE Attempt To Keep Documents Secret

‘Those documents are, in short, essential building blocks of whatever decision this court may issue in this proceeding,’ U.S. District Court Judge Valerie E. Caproni wrote. ‘Their commercial privacy interests cannot possibly justify extinguishing wholesale the public’s First Amendment interest in understanding the activity of the federal courts.’

DXC Technology and Hewlett Packard Enterprise hit a legal speed bump Wednesday as the two companies attempted to finalize a $666 million arbitration award in federal court when the U.S. District Court judge refused a request by both to keep all their legal filings secret.

“The parties filed a sealed, joint letter responding to the Court’s order, along with another joint letter—also sealed—requesting that the first letter be filed under seal,” U.S. District Court Judge Valerie E. Caproni wrote in her order. “Because the parties’ justifications for sealing all filings in this matter are inadequate, their request to do so is denied, and the Court orders that all documents currently filed under seal be unsealed and publicly docketed.”

Caproni – who was appointed to the U.S. District Court of Southern New York under President Obama – ordered DXC and HPE to refile the previously sealed documents by Sept. 20, or file versions of the documents that will meet the legal guidelines she set out.

[RELATED: DXC Picks Former Accenture Executive As New CEO As Mike Lawrie Retires]

DXC was awarded a nine-figure settlement by an arbitrator last month and sought to have that decision upheld and enforced in federal court, but attempted to do so by filing its complaint and related documents under seal. The case currently has no unsealed documents docketed for public examination, except for the notices of attorney appearances and a form letter requesting everything be kept secret.

In a four-page order, Caproni explained to both teams of lawyers the ways they failed to meet the legal burden to keep the documents under wraps, beginning with the First Amendment and the public’s right to understand what happens in court .

“It is plain as day that (DXC’s) petition to confirm an arbitration award and the memorandum of law, attorney declaration, and exhibits that are appended to the petition are judicial documents subject to the First Amendment and common-law presumptions of access,” she wrote.

Lawyers for both sides had hoped to convince the judge that unsealing the documents in the case would discourage companies from seeking arbitration in order to handle civil legal settlements. Caproni countered that if it is in a company’s interest, it will pursue arbitration “every day of the week.”

“A refusal to seal all filings in cases like this one will not, as the parties contend, ‘provide a significant disincentive for parties to choose arbitration rather than litigation to resolve their private commercial disputes,’ “ she wrote. “Such a refusal may disincentivize the filing of petitions to confirm or vacate arbitration awards, but if the commercial privacy interests of a corporation are as compelling as the parties’ purportedly are, the court is confident that the corporation will pursue private arbitration rather than public litigation in the first instance every day of the week.”

The lawyers for the two sides then tried to convince the judge that there was “no public interest” in the settlement. CRN has placed numerous calls to DXC and HPE for comment, as well as sending emails to both companies. The Aug. 15 announcement was also covered by other media including MarketWatch, Law360, and Law.com. DXC and HPE have thus far refused to explain what matter was in dispute that led to arbitration, or what lead an arbitrator to grant an award of that size.

A lawyer for DXC provided a statement to CRN Wednesday that did not address the judge’s decision, but only said her team was “pleased to have obtained a successful outcome in the arbitration for DXC.” A lawyer for HPE did not respond to CRN’s request for comment.

“The court cannot accept the parties’ assertion that there is little or no public interest in the details of this arbitration,” Caproni wrote. “Both parties are, after all, multinational, publicly traded technology companies, and the nature of the arbitral award in this case was apparently of sufficient regulatory interest that the parties were required by law to report its amount to the Securities and Exchange Commission.”

Caproni also beat up the argument that DXC and HPE can settle in secret since no third parties have expressed interest in the case by calling that lack of interest “logical … given that the parties’ dispute has, up until now, proceeded in total secrecy.”

“Finally, the Court must reject the parties’ repeated characterization of this proceeding as ‘merely’ one to confirm an arbitration award,” she wrote. “A ‘claim has been leveled, ‘state power has been invoked,’ and ‘public resources [have been] spent’ because (DXC) elected to file the petition and the documents appended to it. That voluntary act has triggered a profound presumption of public access that cannot easily be overcome.”

DXC, which was formed from HPE Enterprise Services unit’s spin-in merger with Computer Sciences Corp. (CSC) in 2017, said in a U.S. Securities and Exchange Commission filing last month that the arbitration award consisted of $631.8 million in damages and $34.3 million in pre-award interest as well as post-award interest at 3 percent annually compounding until payment.

It appears the award is related to a March 27, 2018, DXC demand for arbitration cited in an HPE SEC filing.

The arbitration demand asserted that HPE is required to “indemnify DXC” for any “transferred long-term capitalized lease obligations of the ES Business that exceed the threshold amount of $250 million.”

DXC contended that this $250 million threshold was exceeded by approximately $1.0 billion because the “valuation of the assets underlying certain leases did not justify their classification as operating leases.”

When the HPE–CSC spin-in merger was completed on April 3, 2017, HPE said the deal delivered $13.5 billion in value to HPE shareholders through an equity stake in DXC for HPE shareholders, a cash dividend payment to HPE, and DXC's assumption of debt and other liabilities.

As a result of the transaction, HPE received a special $3 billion cash payment, and DXC assumed $600 million of net pension liability and $400 million of existing debt.

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