by NCBRC filed a motion to unseal documents in the chapter 7 case of Mata v. National Collegiate Student Loan Trust 2006-1, et al., No. 16-30625, Adv. Proc. No. 18-1089 (Bankr. C.D. Cal.) (motion filed Nov. 15, 2019).
In the underlying adversary proceeding filed by the debtor seeking to discharge student loans, the defendant student loan securitization trusts moved for summary judgment arguing that the loans were nondischargeable under section 523(a)(8)(A)(i), which excepts from discharge “an educational benefit overpayment or loan made, insured, or guaranteed by a . . . nonprofit institution.” The trusts argued that, although they themselves were not non-profit organizations, the loans “were made under a program funded, in whole or in part, by [TERI] a non-profit institution.”
NCBRC’s motion seeks to “unseal (1) two student loan guaranty agreements between National Collegiate Student Loan Trust 2006-1, National Collegiate Student Loan Trust 2006-4, and National Collegiate Student Loan Trust 2007-4, on the one hand, and the now-defunct The Education Resources Institute, Inc. (“TERI”), . . . and (2) two unredacted pleadings that rely on the Guaranty Agreements.”
NCBRC’s brief argues that common law, supported by the First Amendment, protects the public’s right to access to court documents and that that right may be abridged only for compelling reasons. Additionally, the presumption that documents filed in a bankruptcy case are open to public access is codified in section 107. Section 107(b)(1), however, provides an exception to this presumption under which documents may be sealed to “protect an entity with respect to a trade secret or confidential research, development, or commercial information.” This section has been interpreted to require a showing that the documents are so critical to the movant’s business operations as to give its competitors and unfair advantage if made public. The movant has the burden of showing, with specific facts and reasons, the necessity of sealing the documents.
Against this presumption of accessibility, the unopposed motion to seal was supported by the bare-bones assertion by defendants’ counsel that “[t]he Guaranty Agreements are confidential and proprietary documents,” “which if made public, could negatively impact Defendants’ competitive standing in the student loan industry.” Defendants’ counsel further averred that the Guaranty Agreements contain “descriptions of pricing systems, underwriting guidelines, and business plans which are confidential and proprietary in nature, and not generally known in the student loan industry.” The defendants routinely move to seal similar guarantee agreements in cases around the country.
In the brief in support of its motion to unseal, NCBRC contends that the agreements are likely to contain information valuable to other debtors and their counsel in deciding whether to undergo the time and expense of challenging the dischargeability of student loans subject to the same agreements. NCBRC argues that, contrary to the defendants’ assertions, the agreements are irrelevant to any proprietary or confidential claim the trusts could have. In support of this contention, NCBRC points out that the agreements are fifteen years old, TERI ceased operations more than a decade ago, has since obtained a discharge in bankruptcy and will never pay anything on the agreements. In light of the passage of time and significant changes in the student lending industry caused by the financial crisis, any information contained in the agreements could not reasonably be deemed relevant to current business practices. NCBRC argues, therefore, that the only potential use the agreements could have is to provide a basis for the trusts to argue against the dischargeability of student loans. But potential effect on future litigation is not a valid reason to seal documents.
NCBRC’s brief also emphasizes the recent erosion of judicial confidence in TERI’s guarantee agreements as placing a student loan under the except to discharge provision. Prior to its bankruptcy, TERI had guaranteed over 2 million student loans. It guaranteed many of those loans after entering into a “strategic relationship” with the for-profit, First Marblehead Corp. In fact, courts have come to question TERI’s status as a bona fide nonprofit educational lender and are no longer uniformly treating loans as nondischargeable merely because of TERI involvement.
NCBRC also filed a motion to intervene under Bankruptcy Rule 7024 and F.R.C.P. 24(b), for the purpose of seeking to unseal the documents.
The motions and briefs were authored by NACBA member, K. John Shaffer.