PACER is a great resource, and I am one of the many who are delighted it exists. But the absence of transparency in chapter 11 cases causes me to join with the numerous critics of PACER’s ongoing flaws, many of which are well described and collected by Tim Lee at ars technica in an April 2009 online article. I also join with policy groups at Princeton and elsewhere which Mr. Lee identifies as arguing for the government to get out of the way with respect to matters of public interest and let the private sector provide information dissemination when the government does not handle dissemination well.

One of the flaws in PACER was particularly apparent this past week in the Chrysler bankruptcy, and also is a flaw of most chapter 11 proceedings. That flaw is the absence of quickly and freely available transcripts of bankruptcy court hearings in chapter 11 cases. The absence of transparency is particurly inappropriate in a case like Chrysler that is of great interest to hundreds of thousands or millions of people and businesses. The absence of immediate public hearing transcripts is especially ironic when the Obama administration has frequently and rightly announced that transparency in government is essential. One would think that policy could and should be carried over to major chapter 11 cases in general, and especially to a case the President has declared is of tremendous public importance.

What is the situation with respect to hearing transcripts? In PACER, the docket for this and most every other chapter 11 case is marked to indicate that a particular day’s hearing transcript will not become publicly available for 90 days to allow time for redaction of personal information.

Why are transcripts not immediately available? An online Powerpoint from the federal courts explains that the delay in public access to transcripts is a function of judicial efforts to comply with a federal statute intended protect against disclosure of social security numbers, bank account numbers, and other similar personal information. Here is an example policy from one of the federal courts. The gist of the policy is that transcripts are embargoed from the online public docket until there has been an opportunity for parties to the case to request redaction of personal information, with the entire cumbersome process given an absurdly long 90 days. That extreme amount of delay is especially ironic when Chrysler has time and again announced that it intends to be in and out of chapter 11 in less than 90 days. A cynic night suggest that many of the players involved in chapter 11 cases do not want real transparency

Whatever the utility of the 90 days of delay policy may be in Chapter 7 cases filed by individuals, the policy plainly is irrelevant and counterproductive when applied to a Chapter 11 cases, especially ones of national significance. Worse yet, the absence of transcripts promotes secrecy and makes it harder for academics and other disinterested individuals to monitor government (court) actions that amy have a profound effect on millions of individuals. Indeed, as S. Todd Brown points out in his great 2008 law review article on asbestos bankruptcies, transparency is supposed to be paramount in bankruptcy cases, but is woefully lacking in reality:

“Throughout the history of bankruptcy law, transparency has been viewed as an essential element in maintaining confidence in the system. Although “[t]here is a strong presumption and public policy in favor of public access to court records” generally, “[t]he public interest in openness of court proceedings is at its zenith when issues concerning the integrity and transparency of bankruptcy court proceedings are involved[.]” Of course, transparency is not only a question of access to public records but also the open disclosure of critical information in those records. As Judge Bohm recently noted, “in order for the bankruptcy system to function . . . every entity involved in a bankruptcy proceeding must fully disclose all relevant facts.” This mirrors the First Circuit’s emphasis on full disclosure by debtors in bankruptcy:

The [bankruptcy] statutes are designed to insure that complete, truthful, and reliable information is put forward at the outset of the proceedings, so that decisions can be made by the parties in interest based on fact rather than fiction. As we have stated, the successful functioning of the bankruptcy act hinges both upon the bankrupt’s veracity and his willingness to make full disclosure. Neither the trustee nor the creditors should be required to engage in a laborious tug-of-war to drag the simple truth into the glare of daylight. In short, the integrity of the bankruptcy process demands transparency both in disclosure and open public records.” (footnotes omitted)

So, how to make transcripts available quickly and cause real transparency for chapter 11 cases? The easy answer of course is for the federal courts to implement an exception to the general rule for redaction, and to permit/require automatic and more or less instantaneous release of hearing transcripts in Chapter 11 cases through either PACER or private information sources not unlike the “news pool feeds” used for other public matters. This exception and rule could and should apply to, for example, any chapter 11 cases involving any publicly-traded company or any bankrupcty estate with assets of over $ XXX. Hearings in cases of real magnitude are not spent talking about social security numbers or bank account numbers, and so much-needed sunshine should be applied to the hearings.

Another obstacle might be put up by court reporters complaining that making free transcripts available online will deprive them of income. The easy answer to that problem is to require the bankruptcy estate to pay the relevant court reporter a fee that provides ample returns for their work, but without a windfall. Large bankruptcy estates already pay tens of millions of dollars in fees to lawyers and other professionals, so paying court reporter fees should be a non issue.

As a partial fix for the problem, the court’s website has a page mentioning that the Chrysler case is being used as a test for making available through Pacer online audio recordings of the proceedings. That’s a good idea, and certainly worth continuing. But, that’s not a real answer nor is it an effective means for causing effective transparency. Why? Because audio transcripts are far less useful than our paper transcripts. Why is audio far less useful? Because an audio transcript takes many hours to listen through in contrast to the ability to quickly scan through a transcript and/or run boolean word searches against a searchable transcript to find the name of the party of interest or the legal issue of interest.

In sum, transparency in chapter 11 cases is deeply impeded by the needlessly overbroad rules delaying – for 90 days – access to hearing transcripts from chapter 11 cases. The Obama Administration is rightly anxious to achieve transparency in government, and should act to fix the problem quickly. The problem could be fixed for the Chrysler case in about 5 minutes by asking Judge Gonzalez to issue an order requiring the estate to immediately post in PACER complete, searchable hearing transcripts. For the rest of the bankruptcy court system, the same sort of order can and should be issued in all chapter 11 cases involving public companies or section 524(g) of the bankruptcy code.