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  • Writer's pictureKirk Hartley

Bankruptcy Court Secrecy – Kudzu Continues to Spread

Trials are public events, right? The press and public can sit in and watch the trial, and the evidence becomes part of the public record, right? The only exceptions would be, it would seem, for cases involving national security or a real, significant risk to the lives of jurors or a judge. Maybe in most courts, but it’s too often not true in chapter 11 cases. And that lesson was driven home again last week when a North Carolina bankruptcy judge cleared the courtroom during testimony by a law professor in the Garlock asbestos bankruptcy trial on estimation of liability. As reported byT. K. Kim of Legal Newsline:

"CHARLOTTE, N.C. (Legal Newsline) — A federal judge closed his courtroom to the public Friday during portions of testimony by a law professor who leveled charges of fraud against some claimants who sued Garlock Sealing Technologies after being exposed to asbestos.

The bankruptcy trial, which began Monday at the U.S. Bankruptcy Court for the Western District of North Carolina and is expected to last three weeks, will determine the estimated liability of the company for current and future asbestos claims.

Lester Brickman, a professor at Benjamin N. Cardozo School of Law at Yeshiva University in New York, said during unsealed portions of his testimony that certain confidentiality provisions enacted for trusts established to pay claimants who came into contact with asbestos caused significant transparency issues preventing Garlock from cost-effectively ferretting out bogus claims. Brickman authored a report on fraudulent asbestos claims and has testified before Congress on the issue."


Judge George Hodges, who earlier this week denied Garlock’s motion to remove confidentiality designations from evidence relating to the trust claims as well as Garlock’s request to keep Brickman’s entire testimony open to the public, closed the courtroom after a brief recess. A Legal Newsline reporter present at the trial objected to the closure requesting that the judge delay Brickman’s testimony until after the company’s lawyers had a chance to argue for full media and public access to all of Brickman’s testimony.

Hodges overruled the request closing the courtroom for the rest of Brickman’s testimony, which continued on for approximately three more hours. Following Brickman’s testimony, the judge reopened the courtroom to the public and media.

One tort reform advocate called the judge’s move “highly unusual.”

“The closure violates the Bankruptcy Code’s provisions for public access, and appears designed to hide public disclosure of evidence of asbestos trust fraud,” said Ted Frank, the president and founder of the Center for Class Action Fairness and a regular contributor to"

Sadly, unwarranted bankruptcy court secrecy is altogether too common. Indeed, some commentators say that expediency and other factors are resulting in bankruptcy courts that are increasingly rife with unwarranted secrecy. The point is highlighted by a report early this year of a court keeping secret the name of the debtors. Thus, Katy Stech of the Wall Street Journal derisively reported on a chapter 11 case in which a bankruptcy jurist allowed secrecy regarding the name of the debtors. (" Could a restaurant chain that has more than 1,400 employees and hundreds of creditors hide its bankruptcy from them?Twelve days into the bankruptcy reorganization cases of Fiesta Holdings Inc. and Eateries Inc.—two companies that “operate a chain of restaurants in 20 states across the nation,” according to court filings—those companies have yet to reveal the names of their restaurants in hundreds of papers they have filed to the U.S. Bankruptcy Court in Oklahoma City.")

To go back to fundamentals, the generally accepted legal wisdom is that secrecy is perhaps the greatest antithesis of due process and destroys faith in a system that utilizes secrecy. Thus, secrecy was an especially detested feature of Star Camber proceedings, as described here in simple terms and here at some length in a wonderfully easy to read but thorough 2009 law review article written by Stephen Wm. Smith, a United States Magistrate Judge in the Southern District of Texas, Houston division. See "Kudzu in the Courthouse: Judgments Made in the Shade," 3 Fed. Cts. L. Rev. # 2, 177 (2009). As Judge Smith explained, at 214:

"In our common-law tradition, the exercise of judicial power is an inherently public act. A court of record, by definition, is a court that acts on the record, placing its rulings in the public domain, whether by pronouncement in open court, handwriting on a parchment roll, typing on a docket sheet, or digital key-strokes on-line. It is not merely that publicity has many virtues–promoting public confidence in courts, enhancing reliable fact-finding, and curbing judicial abuse of power. Nor is it simply that the people have already bought and paid for the right to know what their judges do with their office. Rather, it is the public record of judicial decisions that renders those decisions legitimate. Philosophers from Kant to Rawls have written treatises on why this is so, but one of our colonial forebears nailed it with only eight words: "Justice may not be done in a corner."

Also consider In re Orion Pictures Corp., 21 F.3d 24, 27 (2d Cir. 1994). There, the Second Circuit ruled: "[i]n most cases, a judge must carefully and skeptically review sealing requests to insure that there really is an extraordinary circumstance or compelling need.” The court also held, “it is a basic tenet of our jurisprudence that court records are public and “open to examination by an entity at reasonable times without charge.” 11 U.S.C. §107(a); see, e.g., Lugosch v. Pyramid Co. of Onondaga, 435 F.3d 110 (2d Cir. 2006)(discussing Constitutional and common law rights of access to documents filed in court).

Unfortunately, as illustrated by the Garlock ruling, bankruptcy judges too often do not follow case law, especially when they see another path as a more expedient means to an end. Now, it remains to be seen whether any media group will challenge the Garlock ruling that sealed the courtroom for the testimony of law professor who has time and again testified in public about perceived or actual fraud in asbestos claiming. In reality, secrecy does not really further the interests of anyone as charges of fraud can and should be made and examined in public view. If there is fraud, it should be revealed and rooted out. And if there is no fraud, then the persons claiming fraud should be shamed for crying wolf. But the proper outcome cannot arrive through secret proceedings.

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