Business Law

In re Purdue Pharma (Bankr. S.D.N.Y.)

The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., ret.), analyzing a recent decision of interest:

The Southern District of New York Bankruptcy (the “Court”) granted a motion by media to unseal redacted filings pertaining to the investigation of potential claims against the Sackler family or their investment vehicles by the Office Committee of Unsecured Creditors (the “UCC”), ruling that the redacted material was not “commercial information” which was excepted from public disclosure by section 107(a) of the Bankruptcy Code. In re Purdue Pharma, 2021 WL 3502611 (Bankr. S.D. N.Y. 8/9/21).

To view the opinion, click here.

FACTS

The UCC in the Purdue Pharma chapter 11 cases undertook an extensive investigation into potential claims against the controlling Sackler family (“the Family”). One of the conditions of a preliminary injunction of litigation against the Family entities was their cooperation with the investigation. During the investigation the parties agreed on protective orders regarding the material to be produced such that information released in that process designated as confidential would not be publicly disclosed by those bound by the orders without the producing party’s right to seek to keep the material from the public record.

Public Media, such as Dow Jones & Company and Reuters News, were allowed to intervene in the investigation and brought motions to compel disclosure of materials filed under seal or in redacted form under the protective order provisions. The Court’s opinion here addressed one of those motions, whereby the Public Media sought disclosure of the names of current business counterparties and investment advisors to certain Family members or their businesses. The Family asserted those names were “confidential commercial information” as excepted from disclosure under section 107(b)(1) of the Bankruptcy Code. This exception was defined by the Second Circuit in In re Orion Pictures Corp. 21 F. 3d 24 (2d Cir. 1994) as “information that would cause an unfair advantage to competitors by providing them information as to the commercial operations of the debtor.” That definition has been expanded to include information that if publicly disclosed would adversely affect the conduct of the bankruptcy case.

The Family asserted that disclosure of the names would fall under the commercial information exception because it might cause economic harm to the Family, particularly in respect to investments that were intended to help fund the Family’s share of any settlement of the chapter 11 cases. In essence, they asserted that the counterparties, if they became recipients of associational media attention, might stop doing economically profitable business with the Family and thereby jeopardize its ability to fund a settlement.

The Court held an evidentiary hearing, whereby the Family members testified at length regarding the need for confidentiality. At the conclusion of the hearing, the Court issued its ruling, concluding that the Family had not borne its burden of proof to show the disclosures fell within the commercial information exception.

REASONING

The Court began by observing that the enactment of section 107 of the Bankruptcy Code changed the common law regarding public access to documents. Section 107(a) states that documents filed with the bankruptcy court are public records, open to examination, except as excluded under subsection (b). Prior to the enactment of section 107, the courts could balance the interests of the public and private parties in determining whether to seal documents. Section 107(b) took away that discretion and made sealing mandatory if one of the specified exceptions applied; however, only those exclusions would apply, rejecting any others recognized by common law.

The Court noted the default position is that filed documents are public unless a requesting party bears the burden of proving one of the enumerated exceptions applies. The strong public policy in favor of disclosure makes that burden a heavy one, as the exclusions are to be narrowly construed. Concrete, specific evidence of the allegedly harm caused by disclosure is necessary to establish the exception. Significantly, the existence of a “so ordered” protective stipulation does not create an additional basis for shielding information from disclosure.

The Court examined all the Family’s purported evidence of potential harm that disclosure of the counterparty names might cause and found it lacking in specifics. The Family’s fears were based on inferences from prior negative experiences when media had publicized the Family’s relationship with counterparties, but the testimony did not offer concrete evidence that it was the public disclosure of an association with the Family which caused the business breakdowns. The Court agreed with the UCC’s contention that harm to the reputation of the counterparties was not the issue, but rather the business harm to the Family which was relevant.

In ruling for the Public Media, the Court concluded “the likelihood of other counterparties or advisors ceasing or limiting business with the Sackler family because of associational publicity has not been sufficiently established for the Raymond Sackler Family to carry its burden of proof regarding the Current counterparty Information.” The testimony was too speculative and relied on unsupported inferences to justify continued sealing of the names.

AUTHOR’S COMMENTS

This case is an excellent reminder that public disclosure of unredacted filed documents is the rule and exceptions to that rule are to be narrowly construed. Too many practitioners believe that a “so ordered” stipulated protective order will allow them to file any document designated as confidential under seal with impunity. That might be the case only if no party is looking or the court in question does not exercise due diligence before granting a sealing request. The party seeking exclusion must meet a heavy burden to establish a section 107(b) exception by offering specific admissible evidence of the harm to be avoided. Failure to do so will and should result in open access to any filed document.

Here, because of the ties of the Sackler Family and Purdue Pharma to the opioid crisis, the Public Mediawas omnipresent and a questionable sealing drew objections. My fear is that in less controversial cases many documents are filed under seal because of the stipulated protective orders which do not deserve to be hidden from public view. I hope diligence in this area by parties and courts will increase as a result of published opinions such as this one.

This article was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., ret.), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.


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