N.K.S. Distributors, Inc. v. Tigani, et al., C.A. No. 4640-VCP (Del. Ch. Feb. 3, 2012).
This summary was prepared by Tara Lattomus of Eckert Seamans.
Whether the automatic stay provisions of section 362(a) of the Bankruptcy Code deprived the Chancery Court of jurisdiction to terminate an existing sealing order where one of the individual defendant involved in the case had filed for bankruptcy.
The Court of Chancery in this decision concluded that it retained jurisdiction to determine the applicability of the automatic stay to litigation pending before it. Specifically, the Court determined that it had jurisdiction to determine whether the automatic stay applied to the request to terminate the sealing order. Turning to the merits, the Court then considered whether the request to unseal certain portions of an expert report and trial transcript should be granted. Finding that the passage of time did nothing to change the fact that the information contained in the report was confidential and proprietary, the Court denied that portion of the request. With respect to the twelve volume trial transcript, the Court found that with the exception of two volumes, only a handful of pages were redacted and that good cause existed for keeping such information under seal.
However, with respect to two volumes that were placed under seal in their entirety, the Court directed the parties to identify specific portions of those volumes that they believed should be kept confidential, and then to file a redacted, public version of those transcript volumes.
This letter opinion was a result of a request from a reporter of The News Journal for full access to an expert report and the trial transcript. Portions of the report and trial transcript had previously been designated as confidential and sealed pursuant to Court of Chancery Rule 5(g). N.K.S. Distributors, Inc. (“N.K.S.”), plaintiff and counterclaim defendant, and Wilmington Trust Company, third-party counterclaim defendant, objected to the reporter’s requests on two grounds. The first objection was that the Court lacked authority to terminate the sealing order because Christopher J. Tigani, a defendant in the matter, had filed for bankruptcy and the litigation was stayed pursuant to the automatic stay of section 362(a) of the Bankruptcy Code. Second, they argued that the portions of the documents currently under seal contain non-public financial information and therefore, good cause existed to keep the documents under seal.
Summary of Court’s Reasoning
The Court began by recognizing that the purpose of the automatic stay under the Bankruptcy Code is to protect the debtor from harassment and collection efforts, and to protect all creditors from the overly aggressive collection tactics of a select few. In short, the purpose of the stay is to maintain the status quo. The Court did not contest the fact that the overall litigation was stayed pursuant to the automatic stay; however, it also recognized that all proceedings in a case are not lumped together for purposes of the automatic stay, and that some aspects of a case may be stayed and others not.
The Court further reasoned that, while only a Bankruptcy Court can grant relief from the automatic stay, other courts retain jurisdiction to determine the scope of the stay with respect to the litigation pending before them. Finding that the reporter’s request did not constitute a collection effort, did not permit any of Mr. Tigani’s creditors to obtain payment, and did not disrupt the status quo, the request to terminate the sealing order was properly before the Court.
The Court then considered the reporter’s position that due to the passage of time, i.e., a year since the trial, that the information contained in the report and trial transcript no longer qualified as proprietary information. The Court concluded that the passage of time did not change the fact that the report contained N.K.S.’s non-public financial information. Accordingly, the continued enforcement of the sealing order with respect to the report was appropriate. However, with respect to the transcript, the Court concluded that sealing two volumes in their entirety was not appropriate. Of the other ten volumes of the transcript, only 87 pages were redacted. Accordingly, the parties were directed to redact confidential portions of the two volumes and to file versions suitable for public access.