Protecting negotiating leverage in other matters does not justify sealing commercial information, according to Bankruptcy Judge Stuart M. Bernstein of Manhattan.
Judge Bernstein’s Dec. 12 opinion also shows that the court will not rubber-stamp agreements to seal the terms of deals negotiated in chapter 11.
The chapter 11 debtor negotiated a new lease with a landlord to give up two-thirds of the space it had been renting. The debtor filed a motion to approve the new lease and a motion to seal.
In the sealing motion, the debtor sought permission to redact economic and non-economic terms of the new and old leases. Judge Bernstein said that the sealing motion gave one justification for sealing: “‘Disclosing the Confidential Terms could jeopardize the Debtors’ ability to obtain, and the Landlord’s ability to negotiate, more favorable terms with other potential tenants.’”
Judge Bernstein denied both the motion to seal and the motion to approve the new lease, citing Section 107(b), which allows redaction of “commercial information.” The Second Circuit, he said, defined “commercial information” as information that would give an “unfair advantage” to competitors.
Judge Bernstein then cited decisions by bankruptcy courts in the Southern District of New York holding that “commercial information” does not include “information designed to protect a party’s negotiating leverage in other matters.”
Even if the terms of the lease could be redacted under Section 107(b), Judge Bernstein said that the debtor had not carried its burden of proof. The motion to seal did not show “that the deal they struck will affect the deals the landlord may reach or attempt to reach for different space in the same premises.”
Judge Bernstein could have given another reason as well. The motion to approve the new lease in substance was a motion to approve a private sale. Without public disclosure of the terms of the new lease, creditors and other potential landlords would lack the information necessary for objecting to the motion or proposing more favorable terms.