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August 31, 2016 Practice Points

"Seemingly Conflicting Responses" Lead to "Discovery on Discovery"

McKinstry reminds attorneys that a party seeking to seal has a heavy burden.

By Ronald Hedges

Abundant case law distinguishes between confidentiality orders intended to limit access to discovery materials and sealing orders intended to restrict access to materials filed with courts. Likewise, abundant case law addresses the standards that a party must meet to file materials under seal. Nonetheless, parties continue to seal materials and courts continue to admonish parties to “get it right.” McKinstry v. Richard Holmes Enterprises, LLCCivil No. 15-96-ART (S.D. Ky. Aug. 18, 2016),provides yet another judicial admonition.

This action arose out of a bankruptcy. A trustee was appointed to administer the assets of the bankrupt company. Most of the assets consisted of claims against a business and its officers. The claims were resolved through settlement, the funds disbursed to creditors, and the bankruptcy court closed the case. One creditor (RHE) moved to reopen the case but failed to comply with a condition imposed by the bankruptcy court, which caused the bankruptcy court to reject the creditor’s motion. RHE’s appeal was rejected by the U.S. District Court for the Western District of Kentucky. RHE sought reconsideration and asked that its motion be filed under seal because it addressed “confidential settlement matters.” It appears that sealing was commonplace with regard to settlement documents but, each time, the district court cautioned that,“[s]hould a member of the public want to read the sealed documents, the parties would have the burden of showing why he should not.” The district court granted the sealing request but required RHE to file a public version of its motion with confidential settlement information redacted. “Before uncapping its black marker, however, RHE apparently had a change of heart. Rather than comply with the Court’s order, RHE has now moved to unseal the entire record in this appeal.” The trustee “would rather keep the record the way it is – sealed.” After disposing of a jurisdictional argument made by the trustee, the district court turned to the merits.

The district court began with the recognition of a strong presumption in favor of “open” court records and that only the most compelling reasons can justify sealing. Even assuming that a compelling reason exists, a sealing order must be narrowly tailored:

Thus, if a party files a thousand documents, but only a part of one contains confidential information, the Court will seal the part of the one, not all of the thousand. That party therefore must go ‘document by document,’ providing the Court with ‘reasons and legal citations,’ as to why any given part of the record should stay secret. [citations omitted].

The trustee in McKinstry argued that filed materials should remain under seal because these included settlement amounts and sealing would protect the privacy of third persons. However, the trustee failed to show where those reasons applied on a “document by document” basis. The district court ordered that the record be unsealed but afforded the parties an opportunity to consider whether any filings that mention the settlement amount should remain under seal.

McKinstry reminds attorneys that a party seeking to seal has a heavy burden. In particular, attorneys must recognize that “compelling reasons” and “narrow tailoring” are standards derived from the First Amendment and the common-law right of access and not the relatively lax “good cause” standard for confidentiality orders under Fed. R. Civ. P. 37(c) or comparable state rules. A failure to meet this heavy burden runs the real risk that materials that are filed become “public.”

Ronald Hedges is with Dentons in New York, New York.

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