Court Rejects “No Seal, No Deal” Argument

Posted by NCBRC - May 7, 2018

Parties cannot have a settlement agreement sealed simply because they have agreed to keep the settlement amount secret from the public. In re Thomas, No. 17-20527 (Bankr. E.D. Ky. March 1, 2018).

In the bankruptcy case she shared with her husband Andrew, Brittany Thomas filed an adversary proceeding against AT&T and DirecTV alleging violation of the automatic stay. She sought to make the case a class action alleging that the complained of conduct extended to other non-party contract-holders with the telecommunications companies. Ms. Thomas and the companies settled their claims as to Ms. Thomas alone, and she agreed to dismiss the class action claims. The parties presented their settlement to the bankruptcy court for approval and sought to have the agreement sealed from public view in perpetuity pursuant to section 107(b)(1) (though in a separate brief to the court, the companies sought a five-year sealing period and limited the request to the amount of settlement only).

Section 107(b)(1) provides that documents may be sealed to “protect an entity with respect to a trade secret or confidential research, development, or commercial information.” “Commercial information” is that which would give competitors an unfair advantage by providing them with information critical to the moving party’s business operations.

The court would have none of it. Citing In re Bell & Beckwith, 44 B.R. 661, 664 (Bankr. N.D. Ohio 1984), the court stated that the policy of open inspection “is fundamental to the operation of the bankruptcy system and is the best means of avoiding any suggestion of impropriety that might or could be raised.” There is thus a strong presumption of public access to bankruptcy records and the Sixth Circuit has emphasized that in order to grant a motion to seal a court must find the reasons supporting the motion are more compelling than those supporting access and that the seal itself is no broader than necessary.

Here, the parties offered no evidence to support their reliance on this exception to the public document rule. Instead, they argued simply that the settlement would not hold if the amount were made public. The court was unpersuaded by this argument for two reasons. First, it was contradicted by the settlement agreement itself which acknowledged that confidentiality was a matter for the court to decide and did not make its terms contingent upon sealing. Second, and more broadly, the court found that sealing records simply upon agreement by the parties would improperly usurp the court’s power and eliminate the operation of section 107(b) when it came to settlement agreements.

Here, the court rejected the proposition that there was any public interest in concealing a settlement amount for the purpose of protecting a defendant against later plaintiffs. In fact, settlement agreements are not the type of commercial information intended to be protected under section 107(b)(1), notwithstanding any agreement to the contrary between the parties.

The court denied the motion to seal and ordered that an unredacted version of the settlement agreement be filed at which time the court will rule on the motion to compromise.

Thomas Bankr ED Ky opinion March 2018


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