Restructuring

Contributed by Debra McElligott
Where a document filed under seal in a bankruptcy case has nothing to do with the bankruptcy itself, is the public entitled to access the document?  The United States District Court for the Eastern District of Virginia considered this unique question in Robbins v. Tripp, relying on both the statutory language of section 107 of the Bankruptcy Code and the policy underlying common law in holding that the report at issue should remain under seal.
Background
The appellee in Robbins, attorney John W. Tripp, had experienced some problems representing the debtors in a particular bankruptcy.  The United States Bankruptcy Court for the Eastern District of Virginia requested that Tripp’s attorney file a report detailing general problems with Tripp’s practice of law and recommending solutions.  Tripp’s attorney sought to file the report under seal. Over repeated objections of the U.S. Trustee, the bankruptcy court granted several motions by Tripp to file the report under seal temporarily. After the bankruptcy court entered an order permanently sealing the report, the U.S. Trustee filed its appeal.
On appeal, the district court considered whether the report was properly sealed in accordance with section 107(a) of the Bankruptcy Code, which provides that papers filed in a bankruptcy case are public records. Section 107(b), however, protects certain types of material contained in bankruptcy filings from public access, including commercial information and scandalous or defamatory matter.  The district court upheld the bankruptcy court’s order to seal the report despite the U.S. Trustee’s arguments that the report contained neither type of material.
Policy Underlying Common Law
The district court first cited to the opinion of the United States Supreme Court in Nixon v. Warner Communications, Inc. to highlight the strong presumption at common law in favor of public access to judicial records. Although section 107 reflects this common law tradition, the court observed that the report was filed only upon the request of the bankruptcy court as part of its “inherent power to regulate the members of its bar.” Additionally, the report contained information regarding Tripp’s law practice in its entirety, not solely in the bankruptcy at issue. As such, the court stated that the report was not a “normal paper in a case.” Section 107 does not specifically address attorney discipline or documents filed for that purpose, and if the report had been filed as part of a state bar investigation rather than an investigation by the bankruptcy court, it would have remained confidential. The district court thus found that the policies underlying public access to papers filed in a bankruptcy case did not apply in Robbins.
Commercial Information
Although the district court held that the bankruptcy court properly applied section 107 to find that the report should be sealed, it was still required to review the interpretation of the standard de novo. First, the court addressed the U.S. Trustee’s argument that the report did not contain “commercial information” within the meaning of section 107.  The district court followed the Second Circuit’s opinion in Video Dealers Software Corp. v. Orion Pictures Corp. (In re Orion), which defined “commercial information” as “information which would cause an unfair advantage to competitors by providing them information as to the commercial operations of the debtor.” The district court held that the report in this case contained commercial information because its disclosure would disadvantage Tripp in attracting and retaining clients, and would serve no purpose other than to aid a competitor.
The district court also declined to apply the opinion of the United States Bankruptcy Court for the Southern District of New York in In re Dreier LLP, which the U.S. Trustee relied upon to argue that information regarding the organization of an entity’s operations is not confidential commercial information.  In that case, the information in question involved the organizational structure of a debtor hedge fund.  Given the nature of the debtor’s business, the disclosure of that information would not place the debtor at a competitive disadvantage.  The court in Robbins found Dreier inapplicable because, unlike a hedge fund, the manner in which a law firm is organized relates directly to the product the attorney offers (i.e., representation).
Scandalous Material
The U.S. Trustee also argued that the material in the report was not “scandalous” within the meaning of the statute.  The district court explained the circuit split regarding the test for whether material is scandalous.  Under one approach, adopted by the First and Eighth Circuits, material that would cause a reasonable person to alter his opinion of the interested party is scandalous and protected under section 107 if it is (i) untrue or (ii) potentially untrue and either irrelevant or included in the bankruptcy filing for an improper end.  Under a different approach, the court looks at the plain meaning of the word “scandalous,” which the Ninth Circuit has defined as “disgraceful, offensive, shameful, and the like,” and which includes material that “bring[s] discredit on one’s class or position.”
The district court did not adopt either test, instead concluding that the report was scandalous under both approaches.  Under the former, the report contained material that could be used to alter a reasonable person’s opinion of Tripp and was potentially untrue and irrelevant, as it contained opinions that were not subject to cross-examination and had no effect on the underlying bankruptcy case.  Under the latter, the report could harm Tripp’s professional reputation and “bring discredit” to his profession.
Implications
Robbins illustrates the scope of section 107 by considering the purpose of allowing public access to papers under the Bankruptcy Code.  Because the report in this case specifically detailed problems with Tripp’s practice of law, the material within could be used to compete with him for business or to embarrass him, even though the purpose of the report for the bankruptcy court was to determine whether he should be sanctioned. Allowing public access to this type of material would cause such files to become “vehicle[s] for improper purposes,” which the Supreme Court expressly prohibited in Nixon. Additionally, disallowing access to the material in this case does not necessarily run counter to the policy underlying section 107 and the common law, as the report was only tangentially related to the bankruptcy case in which it was filed. Robbins thus illustrates the importance of establishing parameters around the access granted by section 107 based on the possible uses of the material.