Securities Investor Protection Corporation v. MF Global Inc.

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK 	NOT FOR PUBLICATION
In re:
MF GLOBAL INC.,
Debtor.
Case No. 11-2790 (MG) SIPA
MEMORANDUM OPINION AND ORDER AUTHORIZING THE TRUSTEE
TO FILE EXHIBIT A TO THE LIMITED AGREEMENT AND RESERVATION
OF RIGHTS BETWEEN THE TRUSTEE AND CME GROUP INC. UNDER SEAL
A P P E A R A N C E S:
HUGHES HUBBARD & REED LLP
Counsel for James W. Giddens, Trustee for the SIPA Liquidation of MF Global Inc.
One Battery Park Plaza
New York, New York 10004
By: 	James B. Kobak, Esq.
PAUL HAMANN
Pro Se
511 Beverly
Lake Forest, Illinois 60045
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the motion (the “Sealing Motion”) of James W. Giddens (the
“SIPA Trustee”) seeking entry of an order authorizing the SIPA Trustee to file under seal Exhibit
A (the “Exchange Membership Exhibit”) to the Limited Agreement and Reservation of Rights
(the “Agreement”) at issue in the Trustee’s Sealing Motion for Approval of an Agreement
Providing for the Return of MFGI Property, Extinguishment of Duplicate Claims Filed With
CME Group Inc., and Allocation of MFGI Property to Customers of the MFGI Estate (the “CME
Agreement Motion,” ECF Doc. # 2029). (ECF Doc. # 2146.) Paul Hamann, a commodities
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customer of MF Global, Inc., filed an objection to the Sealing Motion as well as the CME
Agreement Motion. The Court heard argument of both the Sealing Motion and the CME
Agreement Motion on August 8, 2012. The Court indicated it would grant the Sealing Motion;
the CME Agreement Motion was taken under submission. For the reasons discussed below, the
Court OVERRULES Mr. Hamann’s objection to the Sealing Motion and GRANTS the Sealing
Motion. The CME Agreement Motion remains under submission and will be the subject of a
separate opinion.
BACKGROUND
The SIPA Trustee has separately sought court approval of the Agreement that provides
for, among other things, sale of the Exchange Memberships. However, according to the SIPA
Trustee, the Exchange Membership Exhibit, which is attached to the CME Agreement Motion as
Exhibit A, contains commercial information, and its protection provides no limitation on the
public’s ability to assess the terms of the Agreement or the judicial disposition of the CME
Agreement Motion. Accordingly, the Trustee respectfully requests that this Court permit the
Exchange Memberships Exhibit to be filed under seal pursuant to Bankruptcy Code § 107(b) and
Bankruptcy Rules 9018 and 9037.
The Agreement seeks Court approval of, inter alia, an agreement that provides for: (i) the
liquidation and delivery of over $160 million in MFGI property held or controlled by CME
Group; (ii) the elimination of a duplicate customer claims process under the Exchange Rules,
including the bulk determination, disposition, or limited payment of such claims, and the
modification of the automatic stay to the extent necessary; (iii) the subordination and disposition
of the CME Claim and the GFX Claims in the SIPA Proceeding; and (iv) the allocation of a
portion of the MFGI Property to MFGI’s customer estates. (CME Agreement Motion ¶ 19.)
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Within the meaning of the term MFGI Property are 35 memberships of various classes on
various Exchanges (the “Exchange Memberships,” Agreement § 1.1.5), which the Trustee will
sell, and the CME will transfer the sale proceeds to the Trustee. The Exchange Membership
Exhibit lists in full detail each of the Exchange Memberships.
Mr. Hamann filed an objection to the Sealing Motion and asserts that the request to seal
the Exchange Membership Exhibit is “unconscionable.” (ECF Doc. # 2212, Point 6.)
DISCUSSION
A. Statutory Authority
In limited circumstances, section 107(b) of the Bankruptcy Code empowers a bankruptcy
court to seal documents that would normally be available to the public. Section 107(b) states, in
pertinent part:
On request of a party in interest, the bankruptcy court shall, and on
the bankruptcy court’s own motion, the bankruptcy court may–
(1) 	Protect 	an 	entity 	with 	respect 	to 	a 	trade 	secret 	or
confidential research, development, or commercial information.
11 U.S.C. § 107(b). Rule 9018 of the Federal Rules of Bankruptcy Procedure establishes the
procedures to invoke section 107(b). In relevant part, section 107(b) states:
On motion or on its own initiative, with or without notice, the court
may make any order which justice requires (1) to protect the estate
or any entity in respect of a trade secret or other confidential
research, development, or commercial information . . . contained in
any paper filed in a case under the Code.
FED. R. BANKR. P. 9018. As this Court has held, the moving party bears the burden of showing
that the information is confidential. 	See In re Food Mgmt. Grp., LLC, 359 B.R. 543, 561
(Bankr. S.D.N.Y. 2007).
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B. Presumption Favoring Public Access to Court Records
There is a strong presumption and public policy in favor of public access to court records.
See, e.g., Nixon v. Warner Commc’n, Inc., 435 U.S. 589, 597-98 (1978); Neal v. The Kansas City
Star (In re Neal), 461 F.3d 1048, 1053 (8th Cir. 2006); Gitto v. Worcester Telegram & Gazette
Corp. (In re Gitto Global Corp.), 422 F.3d 1, 6 (1st Cir. 2005); Food Mgmt. Grp., 359 B.R. at
553; In re FiberMark, Inc., 330 B.R. 480, 505 (Bankr. D. Vt. 2005). The right of public access
is “rooted in the public’s First Amendment right to know about the administration of justice.”
Video Software Dealers Ass’n v. Orion Pictures Corp. (In re Orion Pictures Corp.), 21 F.3d 24,
26 (2d Cir. 1994) (public access “helps safeguard ‘the integrity, quality, and respect in our
judicial system,’ and permits the public ‘to keep a watchful eye on the workings of public
agencies’”) (citations omitted). “The public interest in openness of court proceedings is at its
zenith when issues concerning the integrity and transparency of bankruptcy court proceedings
are involved.” Food Mgmt. Grp., LLC, 359 B.R. at 553; Gitto, 422 F.3d at 7 (“This
governmental interest is of special importance in the bankruptcy arena, as unrestricted access to
judicial records fosters confidence among creditors regarding the fairness of the bankruptcy
system.”); In re Bell & Beckwith, 44 B.R. 661, 664 (Bankr. N.D. Ohio 1984) (“This policy of
open inspection, established in the Bankruptcy Code itself, is fundamental to the operation of the
bankruptcy system and is the best means of avoiding any suggestion of impropriety that might or
could be raised.”).
The presumption of open access to court records is codified in section 107 of the
Bankruptcy Code. See 11 U.S.C. § 107(a). Nevertheless, Congress implemented a statutory
exemption to prevent disclosure of commercial information in a bankruptcy case. See In re
Orion Pictures Corp., 21 F.3d at 27. Where a party in interest moves to protect “commercial
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information” from disclosure, the court must grant protection. See 11 U.S.C. § 107(b) (“On
request of a party in interest, the bankruptcy court shall . . . (1) protect an entity with respect to . .
. commercial information”) (emphasis added). Once a court determines that a party in interest is
seeking protection of information that falls within one of the categories enumerated in section
107(b), “the court is required to protect a requesting party and has no discretion to deny the
application.” In re Orion Pictures Corp., 21 F.3d at 27 (emphasis in original).
The exception to the general right of access in section 107(b) is narrow. See id.
(“Congress, itself, has recognized that under compelling or extraordinary circumstances, an
exception to the general policy of public access is necessary.”). However, “[i]n most cases a
judge must carefully and skeptically review sealing requests to insure that there really is an
extraordinary circumstance or compelling need” to keep this material private. Id. (sealing
official documents should not be done without a compelling reason) (citing City of Hartford v.
Chase, 942 F.2d 130, 135-136 (2d Cir. 1991)).
In cases where protection is required, however, the form of protection that must be
granted is not commanded by the statute. The Court has discretion when deciding how to protect
commercial information. See Gitto, 422 F.3d at 9 (“It is true that § 107(b)(2) speaks of
protection in general terms rather than of wholesale sealing, and that courts must therefore
exercise some discretion in determining what form of protection to grant.”). Redacting
documents to remove only protectable information is preferable to wholesale sealing. The policy
favoring public access supports making public as much information as possible while still
preserving confidentiality of protectable information. See, e.g., Nixon v. Warner Commc’ns, 435
U.S. 589, 597-98 (1978).
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CONCLUSION
Here, wholesale sealing of the Exchange Membership Exhibit is warranted. The
Exchange Membership Exhibit is, in its entirety, commercial information, as that term is defined
under Bankruptcy Code § 107(b), because the public disclosure of its contents would have a
“chilling effect on [the Trustee’s business] negotiations.” See In re Borders Grp., Inc., 462 B.R.
42, 47 (Bankr. S.D.N.Y. 2011). The Exchange Membership Exhibit contains detailed
information about the Exchange Memberships, specifically the type and number of MFGI’s
memberships on each of the various exchanges. Public dissemination of these details could
negatively affect the sale process, and, therefore, run against the Trustee’s goal and duty to
maximize the MFGI estate. Mr. Hamann does not rely on any actual facts in his objection and
specifically admits that he bases his argument on circumstantial evidence. In light of these facts,
the Court OVERRULES Mr. Hamann’s objection and GRANTS the Sealing Motion.
Therefore, it is
ORDERED that pursuant to Bankruptcy Code § 107(b) and Bankruptcy Rules 9018 and
9037, the Trustee is authorized to file the Exchange Membership Exhibit under seal and the
United States Bankruptcy Clerk for the Southern District of New York is directed to accept for
filing and seal the Exchange Membership Exhibit; and it is further
ORDERED that the terms and conditions of this Order shall be immediately effective
and enforceable upon its entry; and it is further
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ORDERED that this Court shall retain jurisdiction to hear and determine all matters
arising from or related to this Order.
Dated: August 8, 2012
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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