In a recent decision1, the United States Bankruptcy Court for the Southern District of New York found the standard for sealing under § 107 of the Bankruptcy Code was not met and declined to seal a settlement agreement, despite requests from the Chapter 7 trustee (the "Trustee") and the counterparties to the settlement agreement to do so. Confidentiality was an essential condition of the settlement. In addition, the United States trustee supported the motion to seal, arguing that the standard for sealing had been met.

The court disagreed and permitted only limited redaction to protect confidential commercial information. The court found the "no seal, no deal" condition an insufficient reason to mandate sealing without further evaluating the request under § 107, that the information to be sealed was not "scandalous" or "defamatory," that sealing was not necessary to protect confidential commercial information where targeted redaction would suffice, that a confidentiality order regarding the production of documents did not necessitate sealing, and that there were no equitable or public policy concerns that justified wholesale sealing.


On March 15, 2010, Anthracite Capital, Inc. (the "Debtor"), filed a Chapter 7 petition in one of the largest Chapter 7 cases ever filed. The Debtor and its subsidiaries began operating in March 1998 as specialty finance companies that invested in commercial real estate assets.

After the Chapter 7 filing, the Trustee issued subpoenas for documents and information to be produced and for authorization to examine persons and entities. In addition, the court signed four stipulations governing the production of confidential materials between the Trustee and several entities that later were named as defendants in the bankruptcy adversary proceedings, including BlackRock, Inc., Bank of America, N.A., Morgan Stanley Bank, N.A., and Deutsche Bank, N.A., Cayman Islands Branch.

The Trustee filed a motion under seal that sought permission to file four bankruptcy adversary proceedings under seal. The court entered an order authorizing the filing of those proceedings under seal for 45 days, and the Trustee filed four adversary proceedings under seal, 12-01191 (the "Deutsche Bank proceeding"), 12-01192 (the "Bank of America proceeding"), 12-01193 (the "Morgan Stanley proceeding"), and 12-01204 (the "BlackRock proceeding") (collectively the "Adversary Proceedings").

The Adversary Proceedings were filed under seal for a limited period of time to engage in settlement discussions. The Trustee argued that sealing these documents was necessary because the complaints contained confidential commercial information.

The court extended the seal for short periods of time to encourage settlement discussions but ultimately directed briefing on the issue of lifting the seal.

The Trustee and the BlackRock Defendants (the "Movants") filed a joint motion to, among other things, seal certain documents, including the Adversary Proceeding complaints and the Settlement Agreement, for a period of 30 years. The motion was unopposed.

The Movants argued that the complaints should remain under seal for a period of 30 years because sealing was essential for the settlement, the complaints contained "scandalous" allegations that would harm the reputations of the individual and entity Defendants (and since the settlement occurred before the Defendants defended themselves, the potentially scandalous statements were not refuted), sealing was the proper way to protect confidential commercial information, and equitable and public policy concerns weighed in favor of sealing.


The court disagreed with each of the Movants’ arguments. With regard to the "no seal, no deal" Settlement Agreement provision, the court reasoned that if this standard governed when sealing was required, every settlement in a bankruptcy case would be sealed whenever a party insisted that a document be sealed – essentially removing the need for analysis under § 107. The court concluded that the provision, standing alone, did not warrant sealing.

The court also found that sealing under § 107(b)(2) because of reputational harm must be balanced against the strong policy to all open access to court proceedings, and that bad publicity was not enough. The court ultimately found that the Movants had not shown sufficiently compelling reasons to justify wholesale sealing.

The court closely parsed the Movants’ confidentiality claims. The court rejected a blanket claim because the Movants had not shown sealing’s necessity with sufficient specificity, particularly when the court felt the potentially confidential commercial information could be protected via targeted redaction. The court also rejected the Movants’ argument that the court’s prior confidentiality order required the sealing of the documents.

Finally, the court weighed the equitable and public policy concerns surrounding sealing the documents, finding that allowing the documents to remain unsealed was not "unfair" and that the public had a legitimate interest in the documents as enshrined in the standards of § 107.

Therefore, although the court permitted limited redaction to protect confidential commercial information, the documents were not sealed wholesale.