Oldco M Corporation and Oldco M Corporation (f/k/a Metaldyne Corporation)

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
Oldco M Corp.,
Debtor.
FOR PUBLICATION
Chapter 11
Case No. 09-13412 (MG)
(Jointly Administered)
MEMORANDUM OPINION AND ORDER DENYING APPLICATION TO FILE
SETTLEMENT AGREEMENT UNDER SEAL
A P P E A R A N C E S:
NORRIS, McLAUGHLIN & MARCUS, PA
Local Counsel for Executive Sounding Board Associates, Inc.,
The Liquidating Trustee of the Oldco M. Distribution Trust
875 Third Avenue, 8 th Floor
New York, New York 10022
(212) 808-0700
By: 	Melissa A. Pefia (MP 3320)
MITNICK & MALZBERG, PC
Counsel for Executive Sounding Board Associates, Inc., the
Liquidating Trustee of the Oldco M. Distribution Trust
29 Race Street
Frenchtown, New Jersey 08825
By: 	Steven J. Mitnick, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the Application of the Liquidating Trustee of the Oldco M
Distribution Trust to File an Application to Approve a Confidential Settlement Agreement Under
Seal (the “Seal Motion”). (ECF Doc. # 2173.) The Liquidating Trustee requests an order
pursuant to section 107(b) of the Bankruptcy Code and Rule 9018 of the Federal Rules of
Bankruptcy Procedure to file a “confidential” settlement agreement under seal. A copy of the
settlement agreement has been provided to chambers for in camera review but it has not been
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filed on the public docket. Based on the pleadings before the Court, the Liquidating Trustee has
not satisfied the requirements for sealing under section 107(b). Consequently, the Seal Motion is
denied.
BACKGROUND
On September 21, 2007, one of the debtors (the “Debtor”) in the underlying case entered
into a contract (the “Contract”) with GAZ, a Russian manufacturer of passenger and light
commercial vehicles, to sell parts to GAZ. The Contract provided that disputes under the
Contract would be settled by arbitration. The Debtor’s records reflect that GAZ owed money to
the Debtor for goods shipped and as a result of GAZ’s failure to purchase agreed-upon parts
from the Debtor. On June 15, 2011, the Liquidating Trustee demanded damages from GAZ
under the Contract. When GAZ failed to pay the money requested, arbitration proceedings were
initiated.
To avoid the cost and risk associated with arbitration, the Liquidating Trustee and GAZ
entered into a Release and Settlement Agreement on December 30, 2011 (the “Settlement
Agreement”). The parties executed the Settlement Agreement on January 3, 2012. The
Settlement Agreement provides that the terms will be confidential, but that they can be shared
with certain parties, including the Oversight Committee of the Liquidating Trust, financial
advisors, and legal counsel. The Settlement Agreement is “contingent and shall be legally
binding on the Parties on the date when,” among other conditions, this Court enters an order
“granting review and approval of this Agreement under seal, to the extent allowed by the
applicable bankruptcy rules and authorized by the Court.” (Settlement Agreement ¶ 1(c)
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(emphasis added)).1 Based on the showing made to the Court, however, the Settlement
Agreement cannot be sealed.
DISCUSSION
A. Legal Standard
There is a strong presumption and public policy in favor of public access to court records.
See, e.g., Nixon v. Warner Commc’ns, Inc., 435 U.S. 589, 597-98 (1978); United States v.
Amodeo, 71 F.3d 1044, 1048 (2d. Cir. 1995). This right of public access is “rooted in the
public’s First Amendment right to know about the administration of justice.” Video Software
Dealers Ass’n v. Orion Pictures Corp. (In re Orion Pictures Corp.), 21 F.3d 24, 26 (2d Cir.
1994) (stating that public access “helps safeguard ‘the integrity, quality, and respect in our
judicial system,’ and permits the public ‘to keep a watchful eye on the workings of public
agencies’” (internal citations omitted)). And where a party acts not in a fiduciary capacity for
another, such as a trustee in a bankruptcy case, “[t]he public interest in openness of court
proceedings is at its zenith.” In re Food Mgmt. Grp., LLC, 359 B.R. 543, 553 (Bankr. S.D.N.Y.
2007); see also Gitto v. Worcester Telegram & Gazette Corp. (In re Gitto Global Corp.), 422
F.3d 1, 7 (1st Cir. 2005) (“This governmental interest is of special importance in the bankruptcy
arena, as unrestricted access to judicial records fosters confidence among creditors regarding the
fairness of the bankruptcy system.”); In re Bell & Beckwith, 44 B.R. 661, 664 (Bankr. N.D. Ohio
1984) (“This policy of open inspection, established in the Bankruptcy Code itself, 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.”).
1 This language leaves unclear whether the Settlement Agreement can become effective without an order of
the Court sealing the agreement; arguably it can become effective if “applicable bankruptcy rules” do not permit it
to be sealed or if the Court declines to seal it. But so far, the Liquidation Trustee has sought only an order sealing
the Settlement Agreement; the Court has not yet been asked to approve the settlement.
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This presumption of open access is codified in section 107 of the Bankruptcy Code. See
11 U.S.C. § 107(a). But, in limited circumstances, section 107(b) of the Bankruptcy Code
empowers a bankruptcy court to seal documents that would normally be available to the public.
Section 107(b) states, in pertinent part:
On request of a party in interest, the bankruptcy court shall, and on
the bankruptcy court’s own motion, the bankruptcy court may–
(1) Protect an entity with respect to a trade secret or
confidential 	research, 	development, 	or 	commercial
information.
11 U.S.C. § 107(b). Obtaining an order sealing any court filing under section 107(b) requires a
motion under Federal Rule of Bankruptcy Procedure 9018:
On motion or on its own initiative, with or without notice, the court
may make any order which justice requires (1) to protect the estate
or any entity in respect of a trade secret or other confidential
research, development, or commercial information . . . contained in
any paper filed in a case under the Code.
FED. R. BANKR. P. 9018. The moving party bears the burden of showing that the information is
confidential. 	See, e.g., In re Food Mgmt Grp., 359 B.R. at 561.
But the exception to the general right of access in section 107(b) is narrow. “Congress,
itself, has recognized that under compelling or extraordinary circumstances, an exception to the
general policy of public access is necessary.” In re Orion Pictures, 21 F.3d at 27. In evaluating
a motion to seal, the “judge must carefully and skeptically review” the motion and the underlying
documents to ensure that “compelling or extraordinary circumstances” exist. Id. (citing City of
Hartford v. Chase, 942 F.2d 130, 135-36 (2d Cir. 1991)).2
2 In cases where protection is required, however, the Court has discretion when deciding how to protect
commercial information. 	See In re Gitto, 422 F.3d at 9. 	Sealing court submissions containing commercial
information is a common way to protect entities when the protective provisions of section 107 are triggered. See
e.g., In re Barney’s Inc., 201 B.R. 703, 708-09 (Bankr. S.D.N.Y. 1996) ( “Orion mandates that we seal documentary
information filed in court that does not rise to the level of a trade secret but that is so critical to the operation of the
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B. The Settlement Agreement Cannot Be Sealed
In this case the terms of the Settlement Agreement required the Liquidation Trustee to
seek a sealing order from the Court. “Ordinarily, settlements of civil lawsuits are private
arrangements between the parties,” and the court “’plays no role whatever, standing ‘indifferent’
to the terms the parties have agreed to.’” Geltzer v. Andersen Worldwide, S.C., No. 2007 WL
273526, at *1 (S.D.N.Y. Jan. 30, 2007) (Lynch, J.) (citing Janus Films, Inc. v. Miller, 801 F.2d
578, 582 (2d Cir.1986)). But when a trustee seeks to settle a claim on behalf of a bankruptcy
estate, the public policy of open access to court records comes fully into play, and a searching
judicial inquiry is required before approving the settlement. See Andersen Worldwide, S.C.,
2007 WL 273526, at *1 (“[T]he court must determine the ‘fairness’ of any proposed settlement.”
(internal citation omitted)). As Judge Lynch stated in Andersen Worldwide:
[T]his presumption [of open access] “is based on the need for
federal courts . . . to have a measure of accountability and for the
public to have confidence in the administration of justice . . . .
[P]ublic monitoring is an essential feature of democratic control.”
The Second Circuit has instructed that “the weight to be given the
presumption of access must be governed by the role of the material
at issue in the exercise of Article III judicial power and the
resultant value of such information to those monitoring the federal
courts.” 	Information most clearly due for disclosure includes any
“document which is presented to the court to invoke its powers.”
A stipulation of settlement in a matter in which the Court must
approve the substance of the settlement is most certainly such a
document. 	The 	press 	and 	public 	could 	hardly 	make 	an
independent 	assessment 	of 	the 	facts 	underlying 	a 	judicial
disposition, or assess judicial impartiality or bias, without knowing
the essence of what the court has approved.
Id. at 2 (quoting United States v. Amodeo, 71 F.3d at 1048-50).
entity seeking the protective order that its disclosure will unfairly benefit that entity’s competitors.”) But rather than
wholesale sealing of documents containing some confidential information, redacting the document to remove only
confidential information is the preferred form of protection. See, e.g., In re Borders Group, Inc., 462 B.R. 42, 48
(Bankr. S.D.N.Y. 2011) (“After reviewing the unredacted and redacted versions of the SPA, the Court believes that
the proposed redactions properly protect commercial information while assuring that information relevant to the . . .
Motion will be publicly disclosed. . . . The Debtors have appropriately redacted only commercial information within
the meaning of section 107(b)(1).”).
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Settlements are entitled to no greater protection than any other requests for relief from
bankruptcy courts. In Andersen Worldwide, as in this case, the only reason given for sealing the
settlement was that public disclosure would undercut the settling defendant’s leverage in
negotiating with other claimants. 2007 WL 273526, at *4. Judge Lynch forcefully rejected that
argument:
This is a wan excuse for impinging on the public’s right of access
to judicial documents. 	There is no discernible public interest, or
interest 	of 	the 	bankruptcy 	estates, 	in 	preserving 	Andersen’s
“leverage” as against other parties who have sued it. 	Nor has the
movant indicated any authority to support its implicit proposition
that protecting the bargaining position of the defendant in other,
unrelated cases, is even a proper consideration of a court being
asked to approve a settlement in a given case.
Id. For the same reason, the Court rejects that argument for sealing the Settlement Agreement
here.
Although there is no basis to seal the entire Settlement Agreement in this case, the
Court’s in camera review suggests that there may be some information in the agreement that
may properly be redacted before the Settlement Agreement is submitted with a Rule 9019 motion
for Court approval. For example, the Settlement Agreement contains bank account and routing
numbers that appear to be entitled to protection. In the first instance, the parties may review and
redact the document, submitting the proposed redacted form of the agreement to the Court for
approval to file the redacted agreement in support of a Rule 9019 motion.
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CONCLUSION
For the reasons explained above, the application to file the Settlement Agreement under
seal is DENIED.
IT IS SO ORDERED.
DATED: 	March 1, 2012
New York, New York
_____/s/Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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