In re Thomas
In re Thomas
Opinion of the Court
Parties who settled an adversary proceeding have asked the Court to restrict public access to settlement-related documents filed in the record because they agreed to keep their settlement terms confidential. In fact, they suggest that the settlement will "blow up" if the Court does not seal the documents. But the parties have failed to show that they are entitled to this extraordinary relief, and the Court rejects the proffered "no seal, no deal" position.
Debtor Brittany R. Thomas filed a class-action lawsuit in this Court (Adv. No. 17-2024) against AT & T Corp. and DirecTV, LLC (the "AP Defendants"). Debtor quickly settled her individual claims with the AP Defendants. Debtor then moved the Court in her chapter 13 bankruptcy case to approve the settlement under Federal Rule of Bankruptcy Procedure 9019
As explained below, documents in a bankruptcy court's record are presumptively accessible to the public.
BACKGROUND
Co-Debtors Brittany Thomas and Andrew Thomas filed a chapter 13 bankruptcy petition on April 19, 2017. Just over seven months later, Debtor Brittany Thomas filed an adversary proceeding against the AP Defendants, alleging generally *387that they engaged in a repeated course of conduct that violated the automatic stay under § 362:
Defendants purposely disregard the Bankruptcy Code and illegally collect or attempt to collect amounts from debtors, which they are prohibited from collecting. Defendants' routine and persistent attempted collection and/or collection of prepetition obligations from debtors, are an abuse of process and are in violation of the automatic stay provided to Chapter 13 Debtors by Section 362(a) of the United States Bankruptcy Code ("Code").
[AP No. 17-2024, ECF No. 1 ¶ 2.] Not only did Debtor seek to proceed on her own behalf against the AP Defendants, she filed her Complaint as a proposed class action on behalf of "[a]ll persons who entered into contracts for telecommunication services or satellite television services, with [the AP Defendants] between April 19th 2012 and the present, who filed then filed [sic] a Chapter 13 bankruptcy petition in the Eastern District of Kentucky and who received documents which substantially conform to" documents sent to Debtor. [Id. ¶ 34.]
About seven weeks after Debtor filed her Complaint, however, the parties filed a Notice of Settlement in the adversary proceeding. In her chapter 13 bankruptcy case, Debtor filed her first Seal Motion [ECF No. 32] and filed the fully-executed Settlement Agreement in the record under a provisional seal for the Court's review; it reflects a settlement between the AP Defendants and Debtor individually respecting the claims in the adversary proceeding.
In other words, Debtor halted her class action lawsuit in favor of a quick settlement of her own claims. Because she sought to settle post-petition claims that are property of her chapter 13 bankruptcy estate under § 1306(a)(1), Debtor moved the Court to approve the settlement. Thus, the Court must "determine if the settlement is fair and equitable based on the facts of the case." In re Equine Oxygen Therapy Res., Inc. , Case No. 14-51611,
*388Debtor's first Seal Motion with respect to the Settlement Agreement quotes § 107(b) and Bankruptcy Rule 9018,
Importantly, Debtor's motion does not offer any evidence to show that the Settlement Agreement falls within a category of documents subject to protection from disclosure under § 107(b). Debtor's tendered order (1) does not contain any findings of fact or conclusions of law,
Following an initial review of the two motions and the Settlement Agreement, the Court entered an Order scheduling a hearing, stating:
The proposed order tendered with the Seal Motion [ECF 32-1] provides that the Settlement Agreement will be sealed in perpetuity absent party consent to unseal or a subsequent Court order. The proposed order does not contain any findings and conclusions that justify nondisclosure to the public, even though the Sixth Circuit requires such findings and conclusions and has held "[t]he public has a strong interest in obtaining the *389information contained in the court record." Brown & Williamson Tobacco Corp. v. F.T.C. ,710 F.2d 1165 , 1176, 1180 (6th Cir. 1983) ; see also Shane Group, Inc., et al. v. Blue Cross Blue Shield of Mich., et al. ,825 F.3d 299 (6th Cir. 2016) ; Rudd Equip. Co. v. John Deere Constr. & Forestry Co. ,834 F.3d 589 (6th Cir. 2016) ; c.f. In re Reynolds , No. 04-70259, ECF No. 111 (Bankr. E.D. Ky. May 19, 2017).
In addition, the Motion to Compromise does not discuss the terms of the Settlement Agreement-presumably because Debtor seeks to seal this document. The Court cannot discern from the Settlement Agreement, temporarily filed under seal in the record pending the outcome of the Seal Motion, pertinent terms of the settlement, including the total proposed compensation to Debtor. The Court further notes that the Complaint in the adversary proceeding to be compromised via the Settlement Agreement (No. 17-2024) requests class action certification, but the settlement does not purport to settle the claims in the Complaint on behalf of the proposed class.
[ECF No. 38.] The Court permitted "any party in interest" to "file further information or supplement the record" prior to the scheduled hearing. [Id. ]
After this Order's entry, Debtor filed the second Seal Motion [ECF No. 39] and filed under a provisional seal a Supplemental Memorandum in further support of the Motion to Compromise. Debtor explains her request to seal the Supplemental Memorandum as follows:
Debtor submits that the Supplemental Memorandum in Support of Motion to Compromise, which by this motion she seeks to file under seal, is filed in [sic] to provide a further factual basis for the Motion to Compromise, but for the same reasons which she sought to seal the settlement agreement which forms the basis for the Motion to Compromise, this Supplemental Memorandum in Support of Motion to Compromise must also be sealed."
[ECF No. 39 ¶ 7.] The legal argument in the second Seal Motion is virtually identical to that in the first Seal Motion. Debtor did not file any evidence with the second Seal Motion to establish that either the Settlement Agreement or Supplemental Memorandum may be sealed under § 107(b)(1). And, again, Debtor's proposed order (1) does not contain any findings of fact or conclusions of law, and (2) would seal the Supplemental Memorandum in perpetuity absent a subsequent Court order. [ECF No. 39-1.] The Supplemental Memorandum does supply information in response to the Court's questions about the proposed disposition of settlement funds and the fact that the settlement resolves Debtor's claims alone.
Shortly thereafter, the AP Defendants also filed a Supplement to the Seal Motions. [ECF No. 40.] Their Supplement states that "[t]he Defendants are unwilling to enter into the Settlement Agreement unless the terms thereof remain confidential" and "allowing the Settlement Agreement to be filed under seal would promote the efficient disposition of this dispute and further the public policy favoring settlement agreements." [Id. at 3.] The Supplement cites In re Hemple ,
The Court held a hearing on all of these motions on February 6, 2018, and gave the parties 14 days thereafter to supplement the record. The parties opted to stand on their papers.
ANALYSIS
The Seal Motions ask the Court to seal entire documents (i.e., the Settlement Agreement and the Supplemental Memorandum explaining the settlement) in the Court's record in perpetuity or until a subsequent order is entered unsealing the documents. Debtors offer no explanation in the Seal Motions why both documents must be sealed in their entireties, and why that seal never should expire. At the hearing, the parties' counsel both agreed that the only information that would need to be sealed is the settlement amount.
While the Sixth Circuit has not evaluated a motion to seal a court record in connection with § 107(b)(1), there can be little doubt that it would find Debtor's requests to seal records to be extraordinary. Indeed, the long-standing maxim in the Sixth Circuit is that "[t]he public has a strong interest in obtaining the information contained in the court record." Brown & Williamson Tobacco Corp. v. F.T.C.,
I. Section 107 of the Bankruptcy Code Provides the Framework for Assessing Whether a Bankruptcy Court may Restrict Access to Public Records.
In bankruptcy matters, Congress has codified a strong presumption in favor of public access to all papers filed therein: "Except as provided in subsections (b) and (c) and subject to section 112, a paper filed in a case under this title and the dockets of a bankruptcy court are public records and open to examination by an entity at reasonable times without charge."
On request of a party in interest, the bankruptcy court shall, and on the bankruptcy court's own motion, the bankruptcy court may-*391(1) protect an entity with respect to a trade secret or confidential research, development, or commercial information; or
(2) protect a person with respect to scandalous or defamatory matter contained in a paper filed in a case under this title.
" 'Commercial information' has been defined as 'information which would cause an unfair advantage to competitors by providing them information as to the commercial operations of the debtor' " or another party. In re Frontier Group, L.L.C. ,
II. The Parties Have Failed to Establish that the Settlement Agreement and Debtors' Supplemental Memorandum are Entitled to Protection under Section 107(b)(1).
The Seal Motions ask the Court to restrict public access to documents pertaining to the settlement of an adversary proceeding. The party seeking protection under § 107(b)"has the burden of proving that the information should be protected." Waring , 40 B.R. at 768 (citing In re Fibermark, Inc. ,
Neither the Seal Motions nor the Supplement are accompanied by any evidence-in the form of an affidavit or otherwise-to demonstrate that the documents at issue are protected as confidential "commercial information" under § 107(b). Thus, the Court has no evidentiary basis whatsoever upon which to conclude that the documents are entitled to protection. Compare In re Silicon Graphics, Inc. , Case No. 09-11701, 2009 Bankr. LEXIS 1350, at *2 (Bankr. S.D.N.Y. Apr. 24, 2009) (unpublished) ("The motion to seal the Excluded Schedules was unopposed and was supported by evidence showing that the schedules contain confidential commercial information regarding [the debtor]'s contract counter-parties and the non-public terms of their business arrangements. The Court found that the Excluded Schedules contained confidential commercial information and were entitled to protection under § 107(b)."); with Motors Liquidation Co. Avoidance Action Trust v. JPMorgan Chase Bank, N.A. (In re Motors Liquidation Co.) ,
In addition, the parties' arguments in support of sealing the documents at issue are inadequate. In short, Debtors and the AP Defendants want to keep the terms of their settlement confidential and, thus, included a confidentiality provision in their Settlement Agreement. In fact, Debtors and the AP Defendants essentially tell the Court that there will be no settlement in the adversary proceeding if the terms of settlement are not kept confidential. [ECF No. 32 ¶ 16; ECF No. 39 ¶ 13; ECF No. 40 at 3.] However, the parties' statements about the Settlement Agreement's confidentiality provision are not accurate. While the fully-executed Settlement Agreement does contain a paragraph on confidentiality, that provision does not state that the Settlement Agreement will be null and void if the Court does not seal it in the record. Indeed, the Settlement Agreement's terms implicitly confirm that the parties fully understood that the Court would independently determine whether to seal the Settlement Agreement. "If we were to permit [movant] to file documents under seal simply because it unilaterally agreed to keep matters confidential, then the Court would never have control over motion practice in this case and section 107 would be meaningless." Muma Servs. ,
Further, neither the Seal Motions nor the Supplement provide a valid legal explanation to establish why the confidentiality provision in the parties' Settlement Agreement requires the Court to impose a seal pursuant to § 107(b)(1) and Bankruptcy Rule 9018. Debtors and the AP Defendants certainly offer case law supporting the uncontroversial proposition that settlements are favored within the Sixth Circuit, and that confidential settlements in litigation are not unusual. These truisms, however, do not supplant the fact that only limited kinds of confidential records are entitled to protection under § 107(b), such as confidential "commercial information" under § 107(b)(1).
In the bankruptcy context, courts across the country have held that settlement terms (including settlement amount) are not confidential "commercial information" that is subject to seal under § 107(b)(1). See , e.g. , Geltzer,
*393The sealing request here thus goes to the very core of the 'constitutionally-embedded presumption of openness in judicial proceedings.' Only the most 'compelling circumstances' could overcome the strong presumption in favor of public availability of such a document. The Trustee's submission falls far short of the showing necessary even to raise a serious question with respect to the sealing of the settlement amount." (citations omitted) ); In re Gibbs , Case No. 11-03070,
As noted above, the AP Defendants cite In re Hemple ,
*394[t]here is no discernable public interest, or interest of the bankruptcy estates, in preserving [the movant]'s 'leverage' as against other parties who have sued it. Nor has the movant indicated any authority to support its implicit proposition that protecting the bargaining position of the defendant in other, unrelated cases, is even a proper consideration of a court being asked to approve a settlement in a given case.
Id. at *4,
III. Sixth Circuit Authority Confirms that Sealing Documents in the Public Record is Disfavored.
Finally, although the failure to establish that the documents at issue constitute confidential "commercial information" is enough to deny both of the Seal Motions, the Sixth Circuit's multiple pronouncements on sealing access to public records further support the Court's decision. See, e.g. , Shane Grp., Inc., et al. v. Blue Cross Blue Shield of Mich., et al. ,
The burden of overcoming that presumption [of public disclosure] is borne by the party that seeks to seal them. In re Cendant Corp. ,260 F.3d 183 , 194 (3d Cir. 2001). The burden is a heavy one: "Only the most compelling reasons can justify the non-disclosure of judicial records." In re Knoxville News-Sentinel Co. ,723 F.2d 470 , 476 (6th Cir. 1983).... And even where a party can show a compelling reason why certain documents or portions thereof should be sealed, the seal itself must be narrowly tailored to serve that reason. See , e.g. , Press-Enter. Co. v. Superior Court of California, Riverside Cnty. ,464 U.S. 501 , 509-11,104 S.Ct. 819 ,78 L.Ed.2d 629 (1984).
Shane Grp. ,
Within this circuit, a court granting a motion to seal must make an independent finding as to "why the interests in support of non-disclosure are compelling, why the interests supporting access are less so, and why the seal itself is no broader than necessary."
CONCLUSION
While the settling parties may wish to keep their agreement confidential, they have not provided sufficient authority to demonstrate that the terms of settlement of their adversary proceeding constitutes confidential "commercial information" under § 107(b) and Bankruptcy Rule 9018. Debtor has moved this Court to approve the parties' settlement under Bankruptcy Rule 9019. To do so, the Court must rule on the reasonableness of that settlement, and the public has a right to know the basis for the Court's ultimate assessment.
*395Wherefore, the Court having considered the Seal Motions and the record, and being duly and sufficiently advised, it is ORDERED that
1. The Seal Motions are DENIED; and
2. Debtor shall file an unrestricted and unredacted copy of the Settlement Agreement in the record of this case within seven days of the entry of this Order. Upon submission of the Settlement Agreement in the record, the Court will rule on the Motion to Compromise.
Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code,
The Settlement Agreement requires Debtor to move the Court: (a) to approve the Settlement Agreement; and (b) to seal the Settlement Agreement. Debtor has done so.
See also In re Food Mgmt. Grp., LLC ,
"On motion or on its own initiative, with or without notice, the court may make any order which justice requires (1) to protect the estate or any entity in respect of a trade secret or other confidential research, development, or commercial information ...." Fed. R. Bankr. P. 9018.
In In re Global Crossing , the debtors asked the bankruptcy court to "hear evidence relating to proceedings before the Committee of Foreign Investment in the United States ("CFIUS") in camera ," and to exclude the debtors' competitors from the hearing. 295 B.R. at 722. The evidence asked to be presented in camera was to include sensitive national security information and competitive information such that disclosure would cause commercial damage to the debtors; the debtors had "made a showing that [their competitors had] expressed an interest in acquiring the Debtors or their assets, and would have an interest in CFIUS denying approval of the now pending transaction" between the debtors and a purchaser. Id.
The Court questions Debtor's citation to Global Crossing with respect to when it is appropriate for a court to enter a seal "where necessary to protect confidential information" given the profound factual differences between Global Crossing and the instant matter. Citation to Global Crossing is particularly troublesome given that authority exists that is much more factually analogous to this matter, as discussed in detail below.
The Sixth Circuit requires such findings and conclusions in any order that seals records. See , e.g. , Shane Group, Inc., et al. v. Blue Cross Blue Shield of Mich., et al. ,
The AP Defendants filed a proposed order with their supplement that calls for the sealing of the pertinent documents in the Court's record for five years and provides that "any party in interest to this Bankruptcy Case" may ask AP Defendants' counsel for a copy of the sealed documents, which they may procure only after executing "an acceptable confidentiality agreement." [ECF No. 40-1.] While less restrictive than Debtors' proposed orders, the AP Defendants' order still would limit access to the sealed documents only to a "party in interest" in the bankruptcy case as opposed to the public at large, and would require any party seeking access to accede to terms on a confidentiality agreement presumably to be drafted by the AP Defendants' counsel. Moreover, the AP Defendants' proposed order states: "counsel for the Debtor shall contact the Clerk's Office regarding the return or disposition of the Settlement Agreement as soon as practicable following the closure of this case." [Id. ] In other words, notwithstanding the five-year seal contained elsewhere in the proposed order, the AP Defendants suggest that the Settlement Agreement itself would be pulled from the record of the case , such that it never would be unsealed.
Reference
- Full Case Name
- IN RE Brittany R. THOMAS, Andrew A. Thomas, Debtors
- Cited By
- 4 cases
- Status
- Published