On April 19, 2021, the United States Bankruptcy Court for the Eastern District of Virginia granted a motion (the “Seal Motion”) filed by the Intelsat S.A. debtors (the “Debtors”) to seal the hearing on the Debtors’ motion to extend exclusivity and motion to compel plan mediation. Although bankruptcy courts routinely grant motions to seal content included in pleadings, it is uncommon for a court to prevent certain parties, or the general public, from attending a hearing. This article reviews the Debtors’ unusual request.
The Facts
Confidentiality has been of the utmost importance to the Debtors since their chapter 11 bankruptcy cases were filed on May 13, 2020. In order to ensure that confidential information would not be jeopardized during plan negotiations and related discovery, the Debtors and key constituents entered into a confidentiality agreement in September 2020. Subsequently, in December 2020 the Debtors negotiated and received court approval on a protective order guarding against the disclosure of confidential information.
Following these protective measures, the Debtors entered into a plan support agreement with certain creditors and filed a proposed plan of reorganization on February 12, 2021. However, not all creditors consented to the proposed plan – of note, certain creditor groups holding several tranches of the Debtors’ prepetition notes formally objected to the proposed plan. The Debtors engaged in negotiations with these creditor groups, and the Debtors were forced to file a motion to extend exclusivity and a motion to compel plan mediation when plan negotiations stalled.
Objections to both the motion to extend exclusivity and the motion to compel plan mediation were filed, and the Debtors filed their Seal Motion in which they argued that they needed to include sensitive, non-public information in their reply briefs and requested (a) that replies filed in support of the motions be sealed, and (b) that the hearing on the motions should be sealed. In other words, only key creditors and parties in interest would be permitted to listen to the hearing on Zoom.
Legal Justification
Pursuant to section 107(b)(1) of the Bankruptcy Code, courts may protect entities from potential harm that might result from the disclosure of certain confidential information, specifically “trade secret[s] or confidential research, development, or commercial information.” Courts have held that protection may be necessary if the movant proves that one of these confidential information categories needs to be protected.
Section 107(b)(1) confidentiality protection is often based upon the equitable powers granted pursuant to section 105(a) of the Bankruptcy Code, which gives courts the power to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” In addition, Bankruptcy Rule 9018 sets forth procedures for a party to protect its confidential information by providing that “the court may make any order which justice requires … to protect the estate or any entity in respect of a trade secret or other confidential research, development, or commercial information.”
The UST Objection
The Office of the United States Trustee (the “UST”) objected to the Debtors’ request to seal the entirety of the hearing related to the exclusivity and plan mediation motions (importantly, not the Debtors’ request to redact its replies) on two grounds. First, the UST asserted that there is a general presumption that court hearings should be public. This commonsense argument focused on the Debtors’ willingness to seek relief under chapter 11 of the Bankruptcy Code in a court where court filings are typically open and available to the public. Second, the UST suggested that sealing the entire hearing would likely be unnecessary and that the Court should therefore instead only seal those portions of the hearing that involved confidential information.
The Court’s Holding Granting the Motion to Seal
The Court overruled the UST’s objections and granted the Debtors’ request to seal the hearing to the extent confidential information would be discussed. In granting the Seal Motion, the Court noted that it would be cumbersome and time-consuming to flip the hearing from public to private, and vice versa, on the electronic Zoom platform. And, although the hearing was sealed, the Court instructed the Debtors and the other parties that were permitted to attend to submit a redacted transcript of the hearing as soon as possible. Furthermore, during the second day of the hearing, the Court opened up a portion of the hearing to the general public once confidential information was no longer at risk of being disclosed. Ultimately, the Court granted the Debtors’ motion to extend exclusivity and motion to compel plan mediation.
Takeaways
Filing a motion to seal a pleading or a portion of a pleading is relatively common practice in bankruptcy proceedings. However, prohibiting all parties from simply attending a court hearing is a bit unusual. Nevertheless, the Intelsat case, as well as the earlier decision in In re Health Diagnostic Laboratory, Inc., No. 15-32919 (KRH) (Bankr. E.D. Va. Mar. 24, 2021), demonstrate that such relief is achievable.
Nonetheless, given the public access concerns raised by the UST, counsel and their clients should understand that such relief may be the outlier. Indeed, counsel is wise to educate their clients who are contemplating filing for bankruptcy that such filings will make many of the company’s, and their directors’ and officers’, dealings public knowledge.
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© Copyright 2021 Squire Patton Boggs (US) LLPNational Law Review, Volume XI, Number 119
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