by Karl Schaffer
Carter Ledyard & Milburn LLP; New York
A number of recent decisions on whether to seal confidential commercial information under §107 of the Bankruptcy Code set a high bar for keeping information confidential. Implementing the constitutional and common law principle of public access to courts, Bankruptcy Code §107(a) establishes a general rule that papers filed in bankruptcy cases are open to examination by the public. Bankruptcy Code §§107(b) and (c) make limited exceptions to this principle for certain categories of information, including confidential commercial information. In four recent decisions, courts held that the documents or information at issue did not qualify for protection as confidential commercial information under Bankruptcy Code §107(b).
Confidentiality of Settlements
Three of the recent decisions addressed the confidentiality of settlement agreements. The chapter 7 trustee in Geltzer v. Andersen Worldwide, S.C., 2007 WL 273526, *2 (S.D.N.Y. Jan. 30, 2007), submitted a motion for approval of a settlement of tort claims it brought against Andersen Worldwide S.C. and Arthur Andersen LLP that did not disclose the settlement amount. The settlement agreement provided that if the bankruptcy court requested that the amount of the settlement be provided, the parties would provide it to the judge in camera and request that the bankruptcy court put it under seal. Id. at *2. The chapter 7 trustee asserted that the settlement qualified as confidential commercial information under §107(b), because Andersen was no longer in the business of providing accounting services and, as a result, one of its principal activities was resolving lawsuits. Id. at *3.
Both In re Azabu Buildings Company Ltd., 2007 WL 461300, *1 (Bankr. D. Haw. Feb. 7, 2007), and In re Alterra Healthcare Corp., 353 B.R. 66, 69-70 (Bankr. D. Del. 2006), involved requests by third parties, the creditors’ committee and a newspaper, respectively, to unseal settlement agreements that had previously been sealed by an order of the bankruptcy court. In Azabu, the settlement was of state court foreclosure actions in which the settlement agreement had been sealed by the state court pursuant to a confidentiality provision included by the parties in their settlement agreement. Id. at *1. In Alterra the bankruptcy court had approved nine tort settlements and a motion to establish a $32 million reserve for unresolved tort claims, all filed under seal.
The courts in each of these cases rejected the broad interpretation of confidential commercial information that was urged upon them. The parties suggested that since they would be injured in some way as a result of disclosure, the documents at issue were deserving of protection as confidential commercial information. One such injury was that the disclosure of the amount and details of a settlement would prejudice the party in the future when it sought to settle other claims. The courts did not accept that settlement terms were, in fact, commercial information. Geltzer, 2007 WL 273526, *3 (“But the terms of the instant settlement have nothing to do with the competitive business operations of the debtor or of Andersen, in any normal sense of the words.”); Azabu, 2007 WL 461300 at *2; Alterra, 353 B.R. at 76 (concluding that the information in the settlement agreements did “… not relate to the Reorganized Debtor’s commercial operations nor does it unfairly advantage competitors.”).
Confidentiality of Information in 2019 Statements
In re Northwest Airlines Corp., 2007 WL 724977 (Bankr. S.D.N.Y. March 9, 2007) considered confidential commercial information in the context of Bankruptcy Rule 2019 which requires every entity or committee representing more than one creditor to file a verified statement setting forth details of the claims and interests held by the members of the committee. An ad hoc committee of equity security-holders had been ordered by the bankruptcy court to file an amended rule 2019 statement that included details on the ad hoc committee members’ purchases and sales of the debtors’ securities. The ad hoc committee sought to file the amended 2019 statement under seal, asserting that the information was confidential commercial information, because its disclosure could make it possible for competitors to discern their investment strategies. Northwest, 2007 WL 724977 at *1.
In denying the motion, the bankruptcy court found that the ad hoc committee failed to prove its assertion that the committee members’ investment strategies were commercial information under Bankruptcy Code §107(b). Id. at 2 (“… as noted, there is no support in the record for the Committee’s initial contention that it has sought to protect its members’ ‘investment strategies’”). Citing the Geltzer and Alterra decisions, the bankruptcy court also rejected the committee members’ claims that disclosure would damage their negotiating position in the bankruptcy case as a basis for sealing the disclosures. Northwest, 2007 WL 724977 at *3 N 8 (“there is no discernable public interest, or interest of the bankruptcy estates, in preserving [the defendant’s] leverage as against other parties …”).
These recent decisions finding settlement terms and investment information not to be confidential commercial information under Bankruptcy Code §107(b) serve as a reminder that courts are ready and willing to apply the presumption in the Bankruptcy Code in favor of public disclosure. In order to succeed in maintaining the confidentiality of commercial information, a party will generally need to show that the information is closely related to the business operations of the party and provide evidentiary support for assertions that disclosure will inflict an injury to an interest entitled to legal protection.