In an appeal by three prominent news organizations, the Delaware district court upheld the redaction of customers’ names and personal identifying information in the cryptocurrency reorganization of FTX Trading Ltd.

Is his December 3 opinion, District Judge Colm F. Connolly explained why he declined to follow a decision from New York when he said that the “bankruptcy court denied a request to seal individual customer names in a cryptocurrency bankruptcy case.” In re Celsius Network LLC, 644 B.R. 276 (Bankr. S.D.N.Y. 2022). To read ABI’s report on the Celsius decision, click here.

Redaction of Customers’ Identities

Commencing a chapter 11 reorganization in late 2022, the debtor filed a motion to redact the names, addresses, email addresses and personal identifying information of customers from all court filings. Bankruptcy Judge John T. Dorsey held a hearing with witnesses and entered a 90-day preliminary injunction permitting the redaction of the names, addresses and email addresses of all customers under Section 107(b)(1). At the same time, Judge Dorsey permanently ordered the redaction of the names of natural persons under Section 107(c)(1).

At the hearing, the debtor’s investment banker had testified that the customers gave “material value to the estate” and that releasing the information would “impair” the debtor’s ability to maximize the value of the business. According to Judge Connolly, the witness testified that having a customer’s name alone “would be enough information for a bad actor to identify them and perpetuate a cybercrime.”

As to the value of the customer list, Judge Connolly said that the testimony was “uncontroverted.”

After the initial injunction, Judge Dorsey extended the preliminary injunction for successive 90-day periods. Three news organizations appealed the permanent injunctions and one of the preliminary injunctions.

Finality

The debtor moved to dismiss the appeal on the theory that the preliminary injunction was not a final order. Judge Connolly decided that the order was appealable under the collateral order doctrine.

The Supreme Court held that the collateral order doctrine permits appeals that are too important to be denied review. Under the same doctrine, the Third Circuit held that granting or denying a redaction order is appealable.

Judge Connolly held that the order was appealable under the collateral order doctrine.

The Findings Justify Redaction

On the merits, Judge Connolly began by saying “there is a presumption of public access to judicial records,” but the presumption is not “absolute.” The common law, he said, was codified in Section 107. Of pertinence to the case on appeal, Section 107(b)(1) “protect[s] an entity with respect to a trade secret or confidential research, development, or commercial information.”

Added in 2005, Section 107(c)(1) allows the court to “protect an individual [if] disclosure of [any means of identification] would create undue risk of identity theft or other unlawful injury to the individual or the individual’s property.”

With regard to Section 107(b)(1), Judge Connolly said that the burden is on the debtor, which had adduced uncontroverted evidence that the customer list was an important and valuable asset. Furthermore, the evidence established that nondisclosure of customers would give buyers “confidence” that what they were purchasing “actually” had value.

In substance, Judge Connolly said that the debtor had produced sufficient evidence. Given the lack of evidence from the news organizations, he said there was no need for proving that customers would remain customers or for showing the value of the customer list. He added that customer “information need not rise to the level of trade secret to be protected,” nor need it be a “primary asset” to qualify as confidential information.

Finding no “clear error,” Judge Connolly ruled that the customer list “fell within the ambit” of Section 107(b)(1).

Regarding Section 107(c)(1), Judge Connolly noted how the subsection refers to 18 U.S.C. § 1028(d) where “means of identification” includes names and other information, such as Social Security numbers, dates of birth or driver’s license numbers. The bankruptcy judge, he said, found “that cause existed to authorize the permanent redaction of the names of Debtors’ customer-creditors who are natural persons.”

Judge Connolly said there is “no requirement that [the debtor] show certainty of undue risk for relief under § 107(c).” He said that the news organizations relied on Celsius, where “there were multiple reported incidents of cyberattacks that followed the disclosure of customers’ names.”

Judge Connolly said it would be “absurd” if the word “risk” in Section 107(c)(1) required a showing that harm had already occurred.

Finding sufficient support in the record, Judge Connolly affirmed.