Is it Ok to Enforce Bankruptcy Court Sealing Deals? No, Says SDNY Chief Bankruptcy Judge Morris
Bankruptcy court usually is an adventure, and too often, much of it is off the record. In the Garlock bankruptcy proceedings, the confidentiality issues are now headed towards an appeal. At this point, it seems well worth noting that much of the typical bankruptcy court secrecy plainly violates both law and public policy. Who says so? Chief Judge Morris of the SDNY bankruptcy court. The following excerpts are from this post on Weil’s bankruptcy blog – the whole post is well worth reading. The post summarizes a ruling last year in which Chief Judge Morris rejected the too frequent sealing deals used in bankruptcy and other courts so often that one federal judge referred to sealing and secrecy as kudzu in the courthouse.
"In Togut v. Deutsche Bank AG, Cayman Islands Branch (In re Anthracite Capital, Inc.) et al., Chief Judge Morris of the United States Bankruptcy Court for the Southern District of New York recently provided us with important guidance regarding what may or may not be protected from public inspection in bankruptcy proceedings. In her decision, she reminds us of the core principle of public access to court proceedings and admonishes us to only sparingly seal otherwise public documents. Note that the issues arose after the parties and the US Trustee consented to sealing.
Notwithstanding the absence of objection, the court rejected the various parties’ arguments in favor of sealing the various documents in the adversary proceeding. In ruling that the parties must publicly file (redacted) versions of the pleadings in the adversary proceedings, Chief Judge Morris sent a clear message that litigants in bankruptcy proceedings must meet a high bar to file pleadings and settlements under seal and to keep them under seal beyond the most necessary timetable.
Recognizing the “strong presumption and public policy in favor of public access to court records” (citing Borders), the court paused to note that the power to seal public documents is solely derived from section 107(b) of the Bankruptcy Code, and that any such limitations on the public’s right to access these documents is “warranted only under rare circumstances.” The court further stated that any parties requesting such extraordinary relief must demonstrate that a particular document is “confidential” or “scandalous” (or, presumably, defamatory), and that in any event, the court had no authority to seal public documents or information derived from public documents. In discussing the considerations to take into account in determining whether to seal documents filed in a bankruptcy case, the court rejected each of the parties’ arguments in turn.
[First, *** the] court stated that it should not seal the record simply because the parties negotiated for a “no seal, no deal” provision. If the parties could obtain a sealing order simply because they required that such an order be entered, the power to seal would be taken away from the bankruptcy court and given to the litigants, which would directly conflict with the Bankruptcy Code (and its stated intent) and the common law.
Third, Chief Judge Morris rejected the parties’ argument that the pleadings should be sealed because they contained confidential commercial information, which must be protected pursuant to section 107(b)(1) of the Bankruptcy Code. The court recognized that information is not “commercial” simply because it relates to business affairs, noting that secrecy for its own sake is not enough. Instead, confidential commercial information refers only to confidential business information that may be used “to the detriment of the movant,” such as pricing formulae, marketing strategies, and terms of agreements with suppliers. Because the movants had not specifically identified any such dangers, even severe reputational harm did not rise to the level of “confidential commercial information” that should be sealed pursuant to section 107(b).
In addressing various other arguments and considerations, the court reiterated its central message – that even though section 107(b) of the Bankruptcy Code requires sealing orders under certain circumstances, the bar to that relief is a high one, and nothing expands the specific statutory language in that section of the Bankruptcy Code. If necessary, the parties could redact any particularly harmful information (indeed, the court has given them that opportunity). However, courts are charged to protect the paramount public interest of free access to court proceedings, even over the protestations of the specific parties in interest.
The decision in Anthracite reminds us that bankruptcy court proceedings are not simply disputes between certain parties – they are a part of a judicial system founded on free access to information and public proceedings. Private forums for dispute resolution may exist, but (absent a showing of real and specific harm) the bankruptcy court is not one of them."