United States Court of Appeals
For the First Circuit
Nos. 05-1658, 05-1666
In re GITTO GLOBAL CORP., Debtor
GARRY GITTO and CHARLES GITTO,
Appellants,
v.
WORCESTER TELEGRAM & GAZETTE CORP.; MEDIANEWS GROUP, INC.;
CHARLES L. GLERUM, EXAMINER; AND
PHOEBE MORSE, UNITED STATES TRUSTEE,
Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Torruella and Lipez, Circuit Judges,
and Barbadoro,* U.S. District Judge.
Max Stern, with whom Lillian Hirales and Stern, Shapiro,
Weissberg & Garin, LLP were on brief, for appellant Gary Gitto.
Juiliane Balliro, with whom Paul Leoni, Christine M. Griffin,
and Perkins, Smith & Cohen LLP were on brief, for appellant Charles
Gitto.
Jonathan M. Albano, with whom Aaron Wais, Bingham McCutchen
LLP, David McCraw, and The New York Times Co. were on brief, for
appellee Worcester Telegram & Gazette Corp.
Peter J. Caruso, with whom Peter J. Caruso II and Caruso &
Caruso LLP were on brief, for appellee MediaNews Group, Inc.
*
Of the District of New Hampshire, sitting by designation.
Robert M. Buchanan, Jr., with whom Charles L. Glerum, Joseph
M. Downes III, and Choate, Hall & Stewart LLP were on brief, for
appellee Charles Glerum, Examiner.
August 31, 2005
LIPEZ, Circuit Judge. This case presents a matter of
first impression in our circuit, requiring us to interpret 11
U.S.C. § 107(b)(2), which provides an exception to the rule of
public access to papers filed in a bankruptcy case for material
that is "scandalous or defamatory." Appellants Charles and Gary
Gitto (collectively, "the Gittos"), who were formerly associated
with a company that has since filed for bankruptcy protection,
assert that an investigative report ("Report") compiled by a court-
appointed bankruptcy examiner ("Examiner") falls within the
§ 107(b)(2) exception and that it must therefore be redacted or
sealed. The bankruptcy court rejected this contention, finding
that the appellants had not demonstrated that the material at issue
was scandalous or defamatory and that it therefore must be publicly
available under 11 U.S.C. § 107(a). The district court affirmed,
although it applied a different interpretation of § 107(b)(2) than
the one adopted by the bankruptcy court.
On appeal, the Gittos advance a reading of § 107(b)(2)
that is broader than the one used by either the bankruptcy court or
the district court, and assert that they are entitled to protection
under that exception. The appellees, two media organizations --
Worcester Telegram & Gazette Corp. ("WT&G") and MediaNews Group,
Inc. ("MediaNews") -- and the Examiner, urge us to reject the
Gittos' interpretation of § 107(b)(2) and to find that the public
has a right of access to the Report.
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Although we modify somewhat the interpretation of
§ 107(b)(2)set forth by the district court, we affirm its decision
that the public has a right of access to the Report.1
I.
Gitto Global Corp. ("Gitto Global"), a plastics
manufacturer in Lunenberg, Massachusetts, filed for Chapter 11
bankruptcy on September 24, 2004 amid allegations of financial
distress and accounting irregularities. Shortly thereafter, the
bankruptcy court appointed an Examiner to "begin an investigation
into the existence of any pre[-]petition fraud, dishonesty,
incompetence, misconduct, mismanagement, or irregularity in the
management and business affairs of the Debtor." The Examiner was
also instructed to "file a statement with the Court . . . reporting
the preliminary or final findings of the Examiner, along with any
recommendations of the Examiner for further investigation." The
purpose of the investigation and the Report was to develop
information for use in potential proceedings against Gitto Global.
On December 8, 2004, the Examiner filed a motion
requesting that the court authorize him to submit the Report (which
had not yet been filed) under seal and have it impounded pending a
further order of the court. In an order dated December 9, 2004,
the court allowed the motion, subject to a requirement that any
1
In light of this disposition, we do not reach the claim by
WT&G and MediaNews that there is a First Amendment right of public
access to the full Report. See infra note 3.
-4-
party in interest be allowed to file a motion seeking release of
the Report. On January 5, 2005, after receiving several motions
seeking access to the Report upon its filing, the court modified
its December 9 order to require that within ten days of filing the
Report, the Examiner "provide each person named in the report . . .
with a copy of only that portion or portions of the report that
relate to the individual." The modified order also invited motions
from individuals seeking to seal or redact the report, as well as
objections to motions to seal or redact. The Examiner filed his
Report under seal on January 7, 2004 and served redacted copies on
approximately 120 individuals pursuant to the court's January 5
order.
Among those who received redacted copies of the Report
were appellant Gary Gitto, part-owner and former CEO of Gitto
Global, and appellant Charles Gitto, who held himself out as
chairman of Gitto Global and is Gary Gitto's father. The Gittos
filed motions requesting that the Report remain under seal, as did
approximately twenty-four other individuals. In their motions, the
Gittos argued that there was no right of public access to the
Report under either the common law or the First Amendment. Gary
Gitto further argued that the Report contained scandalous and
defamatory material within the meaning of 11 U.S.C. § 107(b)(2),
and therefore that the usual presumption of public access under
§ 107(a) did not apply. Appellees WT&G and MediaNews, both news
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organizations, opposed the motions to seal. The appellees argued
that there is a right of public access to the Report under the
First Amendment, the common law, and § 107(a), and that the
appellants had not demonstrated that the Report contained
defamatory matter for purposes of § 107(b)(2).
On February 9, 2005, after a hearing on the various
motions, the bankruptcy court concluded in a memorandum that there
was nothing scandalous or defamatory in the Report. It ruled that
the entire Report (with specific bank account numbers redacted
pursuant to the 11 U.S.C. § 107(b)(1) exception to public access
for confidential information) should be made publicly available
pursuant to § 107(a) and the common law presumption of access. In
light of its ruling on the statutory and common law claims, the
bankruptcy court found it unnecessary to decide whether there was
also a First Amendment right of public access to the Report.
Gary and Charles Gitto appealed the bankruptcy court's
decision to the United States District Court for the District of
Massachusetts.2 The district court affirmed. Despite adopting a
broader definition of the term "defamatory" than the bankruptcy
court had used, the district court agreed that there was no basis
to seal or redact the Report under § 107(b)(2) and therefore that
2
Charles Gitto filed his initial motion to seal and his appeal
to the district court on behalf of both himself and Tradex Corp.,
a corporation that he apparently owns and controls, and that was a
Gitto Global creditor. Tradex Corp. is not identified as a party
to this appeal, however.
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§ 107(a) dictated public access. The court also concluded that a
common law analysis would lead to the same result and, like the
bankruptcy court, found it unnecessary to reach the appellees'
claim of a First Amendment right of access. This appeal followed.
II.
The primary issue on appeal is the definition of
"defamatory" as that term is used in 11 U.S.C. § 107(b)(2). Before
turning to that difficult question, however, we must describe the
common law presumption of access to court filings.
A. Common law presumption of access
Under the common law, there is a long-standing
presumption of public access to judicial records. See Nixon v.
Warner Communications, Inc., 435 U.S. 589, 597 (1978); see also In
re Boston Herald, Inc., 321 F.3d 174, 189 (1st Cir. 2003).3 This
presumption of 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." In re Orion
3
As we noted in In re Boston Herald, the Supreme Court has
also "recognized a qualified First Amendment right of access to
certain judicial proceedings and documents." 321 F.3d at 182. It
is unclear whether the constitutional right of access would attach
to the type of document at issue in this case, namely a report
filed by a bankruptcy examiner pursuant to 11 U.S.C.
§ 1106(a)(4)(A). See In re Boston Herald, 321 F.3d at 182
(describing the framework for determining "if a constitutional
right of access applies to particular documents"). Given our
conclusion that there is a right of public access to the Report
under 11 U.S.C. § 107, we need not determine whether there is also
a right of public access under the First Amendment.
-7-
Pictures Corp., 21 F.3d 24, 26 (2d Cir. 1994) (internal quotation
marks and citations omitted). Despite these important interests
advanced by public access to judicial records, the right of access
is not absolute. As the Supreme Court has recognized, "[e]very
court has supervisory power over its own records and files, and
access has been denied where court files might have become a
vehicle for improper purposes." Nixon, 435 U.S. at 598. Courts
have exercised their discretion under the common law to abrogate
the right of public access where doing so was necessary to prevent
judicial records from being "'used to gratify private spite or
promote public scandal[,]'" id. (quoting In re Caswell, 29 A. 259
(1893)), or to prevent their records from becoming "reservoirs of
libelous statements for press consumption or . . . sources of
business information that might harm a litigant's competitive
standing." Id. (citations omitted). Although these examples
demonstrate that it is within a court's discretion to curtail the
common law presumption of public access, "[o]nly the most
compelling reasons can justify non-disclosure of judicial records."
FTC v. Standard Fin. Mgmt. Corp., 830 F.2d 404, 410 (1st Cir. 1987)
(internal quotation marks omitted).
B. 11 U.S.C. § 107
In the bankruptcy context, the right of public access is
codified in a specific statutory provision, 11 U.S.C. § 107.
Section 107, which Congress enacted in 1978, establishes a broad
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right of public access, subject only to limited exceptions set
forth in the statute, to all papers filed in a bankruptcy case.
Specifically, 11 U.S.C. § 107(a) provides
Except as provided in subsection (b) of this section, a
paper filed in a case under [the Bankruptcy Code] and the
dockets of a bankruptcy court are public records and open
to examination by an entity at reasonable times without
charge.
As one of our sister circuits has explained,
[s]ection 107(a) is rooted in the right of public access
to judicial proceedings, a principle long-recognized in
the common law and buttressed by the First Amendment.
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 Crawford, 194 F.3d 954, 960 (9th Cir. 1999); see also In re
Bell & Beckwith, 44 B.R. 661, 664 (Bankr. N.D. Ohio 1984) ("Public
scrutiny is the means by which the persons for whom the system is
to benefit are able to insure its integrity and protect their
rights. 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."). It is thus
fitting that the coverage of § 107(a) is "sweeping," see William T.
Bodoh and Michelle M. Morgan, Protective Orders in the Bankruptcy
Court: The Congressional Mandate of Bankruptcy Code Section 107 and
Its Constitutional Implications (hereinafter Bodoh & Morgan), 24
Hastings Const. L.Q. 67, 82 (1996), extending to "all papers filed
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in a bankruptcy case," H.R. Rep. No. 95-595, at 317 (1977); S. Rep.
No. 95-989, at 30 (1978) (emphasis added).
There are only two exceptions to the broad § 107(a) right
of public access, both codified in § 107(b):
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; or
(2) protect a person with respect to scandalous or
defamatory matter contained in a paper filed in a case
under [the Bankruptcy Code].
In other words, if a paper filed in bankruptcy court fits within
§ 107(b)(1) or (2), "[p]rotection is mandatory when requested by a
'party in interest.'" 2 Collier on Bankruptcy ¶ 107.03 (15th ed.
rev. 2005).4
Together, the two components of § 107 -- the broad right
of access created in § 107(a) and the exceptions set forth in
4
The procedure for implementing § 107(b) is set forth in Fed.
R. Bankr. P. 9018:
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, (2) to protect
any entity against scandalous or defamatory matter
contained in any paper filed in a case under the Code, or
(3) to protect governmental matters that are made
confidential by statute or regulation. If an order is
entered under this rule without notice, any entity
affected thereby may move to vacate or modify the order,
and after a hearing on notice the court shall determine
the motion.
-10-
§ 107(b) -- create a framework for determining whether a paper
filed in a bankruptcy case is available to the public or subject to
protection. Absent § 107, this question would be addressed by
reference to the common law. Because § 107 speaks directly to the
question of public access, however, it supplants the common law for
purposes of determining public access to papers filed in a
bankruptcy case. See United States v. Texas, 507 U.S. 529, 534
(1993) ("In order to abrogate a common-law principle, the statute
must speak directly to the question addressed by the common law."
(internal quotation marks omitted)). Therefore, "issues concerning
public disclosure of documents in bankruptcy cases should be
resolved under § 107," In re Phar-Mor, Inc., 191 B.R. 675, 679
(Bankr. N.D. Ohio 1995), not under the common law.
III.
For purposes of this appeal, all parties agree that the
Examiner's Report is a paper filed in a bankruptcy case and that
§ 107 therefore governs the issue of public access to the Report.5
See 11 U.S.C. §§ 1106(a)(4)(A), (b) (requiring an examiner to file
a statement of his investigation). The parties also agree that a
bankruptcy court has the power to protect a person seeking relief
5
At an earlier stage of these proceedings, the appellants
argued that the Report was not a "paper filed" for purposes of
§ 107(a) on the ground that the word "file" has a different meaning
in § 107(a) than in 11 U.S.C. § 1106(a), the provision of the
Bankruptcy Code under which the Examiner was obligated to "file" a
statement of his investigation. The district court rejected this
contention, and the appellants do not pursue it on appeal.
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with regard to a public record such as the Report only when the
record falls within one of the exceptions set forth in § 107(b).
The issue on which they disagree is whether material in the Report
falls within the § 107(b)(2) exception for "defamatory matter."6
Resolution of that disagreement requires us to consider the meaning
of the word "defamatory" as it is used in § 107(b)(2). Our review
of this issue is de novo. See In re Boston Reg'l Med. Ctr., Inc.,
410 F.3d 100, 108 (1st Cir. 2005) ("Like the district court, we
review de novo the bankruptcy court's conclusions of law.").
A. The § 107(b)(2) exception
1. The Gittos' proposed reading of the exception
The Gittos contend that to qualify for protection under
§ 107(b)(2), they need only identify material that would cause a
reasonable person to alter his opinion of them -- namely, in their
words, material that is defamatory "[u]nder the well-established
meaning of the term." They maintain that "[n]othing in the
statutory text states, or even suggests, that anything more is
required." The district court rejected this position, emphasizing
that it "would sweep all manner of documents into its embrace" in
6
The § 107(b)(2) exception applies to both "scandalous" and
"defamatory" matter. On appeal, the appellants focus exclusively
on the "defamatory" prong of the exception. They do not suggest
any definition for the "scandalous" prong, nor do they attempt to
demonstrate that the Report is scandalous within the meaning of
§ 107(b)(2). Accordingly, we focus on the "defamatory" prong as
well.
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contravention of the § 107(a) presumption favoring public access in
the bankruptcy context. We agree.
Although there is virtually no legislative history for
§ 107, the plain language of § 107(a) evinces a clear congressional
intent that papers filed in bankruptcy cases be available to the
public. Many, if not the vast majority, of these papers will
include material that is likely to affect an individual's
reputation in the community. Allegations of mismanagement or
fraud, for example, might well cause a reasonable person to alter
his opinion of the individual against whom the allegations are
made. As one bankruptcy court explained, it would be inconsistent
with the presumption of public access in § 107(a) to treat such
allegations as defamatory within the meaning of § 107(b)(2):
The complaint . . . alleges that Defendants may have
received fraudulent transfers. . . . Fraudulent
transfer actions . . . are common in bankruptcy practice,
and to grant Defendants' motion because of this
allegation could result in the sealing of pleadings in a
number of adversary proceedings. Congress, in enacting
section 107, did not contemplate such a result, and
intended that the sealing of pleadings would be the
exception rather than the rule.
Hope ex rel. Clark v. Pearson, 38 B.R. 423, 425 (Bankr. M.D. Ga.
1984).
The Gittos concede that § 107(a) reflects a congressional
decision that filed papers are presumptively public and that such
records are eligible for impoundment only under the specific
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exceptions set forth in § 107(b). They dispute, however, the
district court's conclusion that a broad reading of the exception
would result in the sweeping curtailment of public access.
Emphasizing that § 107(b)(2) requires the court to protect a person
but does not indicate what form the protection should take, they
argue that not all material falling within the § 107(b)(2)
exception will necessarily be sealed. Rather, they argue,
§ 107(b)(2) merely triggers the court's duty to engage in a
balancing of the interests as required under the common law. Based
on this common law inquiry, the court would then use its discretion
to take whatever protective measures justice required, whether it
be sealing or a more modest form of protection.
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. It does not follow, however, that the
threshold to qualify for protection under § 107(b)(2) is a low one.
The Gittos acknowledge that § 107(a) reflects a legislative
decision that papers filed in a bankruptcy case are public records.
The reading of § 107(b)(2) that the Gittos propose, i.e., that any
material tending to harm a person's reputation triggers the
exception, would significantly curtail the public's access to these
records. Once an interested party identifies material that is
scandalous or defamatory, the court must protect the party.
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Although the protection may stop short of sealing the entire
document containing the defamatory material, any form of protection
will limit the information available to the public. The
interpretation of § 107(b)(2) advanced by the Gittos therefore
remains problematic despite the seal/protect distinction that they
highlight.
Moreover, there is no support for the Gittos' argument
that § 107(b)(2) is merely a trigger for the traditional common law
analysis regarding public disclosure. The common law requires the
court to determine whether the document at issue is a "judicial
record" subject to the presumption of public access, and, if so, to
"balance[] the public interest in the information against privacy
interests." In re Boston Herald, 321 F.3d at 190. Section 107
displaces this approach entirely. First, it dispenses with the
need to determine whether the document at issue is a "judicial
record" by clarifying that, in the bankruptcy context, the
presumption of public access applies to any paper filed in a
bankruptcy case, not only the narrower category of papers that
would be considered judicial records under the common law. See id.
at 180 (for purposes of the common law presumption, "[n]ot all
documents filed with a court are considered judicial documents"
(internal quotation marks omitted); Standard Fin. Mgmt. Corp., 830
F.2d at 412-13 ("The presumption that the public has a right to see
and copy judicial records attaches to those documents which
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properly come before the court in the course of an adjudicatory
proceeding and which are relevant to the adjudication."). Once the
presumption of public access attaches under § 107(a), the next step
in the inquiry is not to engage in a balancing of the equities, as
required by the common law, but rather to determine whether the
material at issue falls within a specific exception to the
presumption -- namely, into one of the § 107(b) categories.
Finally, if material does come within one of the statutory
exceptions to public access, § 107 requires a court to act at the
request of an interested party -- and permits a court to act sua
sponte -- to protect the affected party. In short, § 107 speaks
directly to the issues regarding disclosure that are addressed by
the common law analysis; its framework is not merely a prelude to
the common law analysis. See Phar-Mor, 191 B.R. at 679 ("In other
areas of the law, courts have relied on showings of 'compelling
reasons,' or balancing the interests of privacy and public right to
know, when reviewing a request for judicial non-disclosure. The
mandatory language of § 107(b) negates the need for such
inquiries." (citation omitted)).
In a final effort to defend their position, the Gittos
assert that a reading of § 107(b)(2) that does not include a common
law balancing of the equities would impermissibly infringe on the
courts' traditional supervisory authority over their own records
and files, see Nixon, 435 U.S. at 598, by limiting their
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discretion. Such a reading, the Gittos argue, "ignores the well-
established principle that, where long-standing inherent powers of
a court are concerned, in the absence of 'clear and unmistakable'
congressional intent to restrict them, statutes should be construed
so as to preserve the district court's usual role."
As we have already discussed, § 107 limits the discretion
of courts regarding public access to papers filed in a bankruptcy
case by providing that all papers filed are public records (and
therefore not subject to protective orders) unless material
contained therein falls within one of the statutory exceptions, in
which case the court "shall," on request of a party in interest, or
"may," on its own motion, protect the affected party. This
arrangement reflects Congress's intent to cabin the courts'
authority over their records and files with regard to public access
issues in bankruptcy cases. Section 107 is therefore readily
distinguishable from the statute we considered in In re Atlantic
Pipe Corp., 304 F.3d 135 (1st Cir. 2002), the case on which the
Gittos' argument relies. In Atlantic Pipe Corp., the issue was
whether the Alternative Dispute Resolution Act of 1998 ("ADR Act")
restricted "the district courts' authority to engage in the case-
by-case deployment of ADR procedures." Id. at 142. Emphasizing
that "Congress may cabin the district courts' inherent powers [only
if] its intention to do so [is] clear and unmistakable," we
concluded that nothing in the ADR Act, which required judicial
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districts to adopt some form of ADR procedures, could be
interpreted as stripping district court judges of their inherent
power to require mediation. Id. The statutory language of § 107,
by contrast, evinces a "clear and unmistakable" intent to cabin the
inherent supervisory authority of district courts over their own
records and files when it comes to issues of public access to
papers filed in a bankruptcy case. We therefore reject the
interpretation of § 107(b)(2) advanced by the Gittos.7
2. Our reading of the exception
Papers filed in the bankruptcy court do not fall within
the § 107(b)(2) exception merely because they would have a
detrimental impact on an interested party's reputation. Rather, as
both the bankruptcy court and the district court determined, the
statute requires something more. The exact nature of this
additional showing is not apparent, however, from the face of the
statute nor from the legislative history. See Bodoh & Morgan, 24
Hastings Const. L.Q. at 89 ("Although the class of persons covered
by subsection 107(b)(2) is well defined, the type of materials
constituting scandalous or defamatory matter is not."). It is
7
In light of this conclusion, we also reject the Gittos'
contention that the bankruptcy court erred in failing to "make the
careful balance of the interests required by the common law."
Moreover, the Gittos' arguments regarding the weight to be
attributed to different interests under the common law analysis are
inapposite.
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therefore left to the courts to determine the specific contours of
the exception.
a. Untruth vs. potential untruth
Although the bankruptcy court did not explicitly state a
test for determining whether material falls within § 107(b)(2), it
concluded that a party seeking to invoke the exception must "come
forward with the particular facts that demonstrate the material at
issue is scandalous or defamatory." In denying all of the motions
for protection, the court explained that "[i]n almost all instances
there was no proof" and noted that some movants "urged that the
Court not divulge to the public information about them even though
they do not allege that [the] information . . . is factually
inaccurate." Based on these statements, the district court
described the bankruptcy court as holding that "appellants, in
order to enjoy the protection of § 107(b)(2), must demonstrate that
material in the Report is untruthful."
The bankruptcy court's test is largely unworkable. While
some parties seeking protection under § 107(b)(2) may be able to
demonstrate untruthfulness solely on the basis of the papers filed
with the court, such situations will be rare. More often than not,
statements in a court filing are disputed. It would be unrealistic
to require the bankruptcy court to resolve these factual disputes
at a preliminary stage of the proceedings. The untruthfulness
requirement would add an enormous burden to the bankruptcy courts'
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already heavy docket by turning motions for protection under
§ 107(b)(2) into an occasion for mini-trials. We therefore
emphasize that although a bankruptcy court may grant protection
under § 107(b)(2) based on a showing of untruthfulness, protection
on this basis is available only in the rare case where the
untruthfulness is readily apparent. Bankruptcy courts are under no
obligation to resolve questions of truthfulness presented by a
§ 107(b)(2) motion where doing so would require discovery or
additional hearings, or would be otherwise burdensome.
In most cases, a party filing a motion for protection
under § 107(b)(2) will only be able to show that the material at
issue is potentially untrue. Potentially untrue material may also
implicate § 107(b)(2). However, given the relative ease of showing
potential untruthfulness, such a showing, standing alone, cannot be
enough to trigger the exception. To hold otherwise would undermine
the policy of public access codified in § 107(a). Therefore, we
hold that a party may seek protection under § 107(b)(2) based on
potentially untrue information that would alter his reputation in
the eyes of a reasonable person. To obtain protection, however, an
additional showing must be made.
b. The additional showing
The district court looked to the opinions of other courts
applying § 107(b)(2) and to analogs of § 107(b)(2) to determine
under what circumstances allegedly defamatory material that is
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potentially untrue may trigger protection under § 107(b)(2).
Finding this to be a sensible approach in dealing with a matter of
first impression, we do the same.
Some courts faced with interpreting § 107(b)(2) have
noted the similarity between that subsection and Fed. R. Civ. P.
12(f), which provides that "the court may order stricken from any
pleading any . . . redundant, immaterial, impertinent, or
scandalous matter." See Phar-Mor, 191 B.R. at 678 (tracing "[t]he
authority to protect persons from scandalous or defamatory
material" to Rule 26 of the Rules of Practice for the Courts of
Equity of the United States, a precursor to Fed. R. Civ. P. 12(f)).
Under Rule 12(f),
scandalous allegations . . . will be stricken from the
pleadings in order to purge the court's files and protect
the subject of the allegations. But there are several
limitations on the court's willingness to strike
scandalous allegations. For example, it is not enough
that the matter offends the sensibilities of the
objecting party if the challenged allegations describe
acts or events that are relevant to the action. As a
result, courts have permitted allegations to remain in
the pleadings when they supported and were relevant to a
claim for punitive damages.
Hope, 38 B.R. at 424-25 (quoting 5 Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 1382 (3d ed. 2004)).
The Phar-Mor court concluded that Rule 12(f) and § 107(b)
share a common premise: "A person within the courts' jurisdiction
should not be subjected to scandalous or defamatory material
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submitted under the guise of a properly pleaded court document."
191 B.R. at 678-79. Exceptions to the common law presumption of
public access appear to share the same premise. As the Supreme
Court emphasized in Nixon, under the common law, public access to
court records and files "has been denied where court files might
have become a vehicle for improper purposes." 435 U.S. at 598.
The Court offered several examples of such "improper purposes,"
including gratifying public spite, promoting public scandal, and
using court files as "reservoirs of libelous statements for press
consumption." Id. As is the case under Rule 12(f), these bases
for removing material from the public eye focus not just on the
impact of the material on a person's reputation, but also on the
role of the material in the court records. There is no reason to
believe that the role of the material is any less central to the
protection inquiry under § 107(b)(2) than it is under the Federal
Rules of Civil Procedure or the common law.
The case law interpreting and applying § 107(b)(2) also
supports the context-sensitive inquiry that we have just described.
In re Commodore Corp., 70 B.R. 543 (Bankr. N.D. Ind. 1987), for
example, involved a motion to strike portions of a brief that
claimed that Lord, Bissell & Brook ("L B & B"), the court-approved
counsel for the debtor, was not disinterested and therefore was not
entitled to compensation and reimbursement of expenses. LB&B
asserted that certain statements in the brief, including
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allegations that it was "in [the] pocket" of and "a front for"
another company, were scandalous or defamatory within the meaning
of § 107(b)(2). 70 B.R. at 545 n.3 (internal quotation marks
omitted). The bankruptcy court denied the motion, in part on the
ground that "the statements in question were made in support of
[the objector's] allegations that L B & B was not disinterested."
Id. at 546. In other words, the court viewed the statements'
relevance to a bona fide legal claim as pertinent to the §
107(b)(2) inquiry.
The decision by the district court in In re Continental
Airlines, 150 B.R. 334 (D. Del. 1993) also suggests that the
purpose of including material in a paper filed with the court
should inform the inquiry into whether that material falls within
the § 107(b)(2) exception. Continental Airlines involved the
sealing of reports generated by a fee-reviewer pursuant to 11
U.S.C. § 330(a)(1)(A), which allows the court to award "reasonable
compensation for actual, necessary services rendered" in a
bankruptcy case. The bankruptcy court ordered that the reports be
sealed pursuant to § 107(b)(2). The district court reversed,
concluding that there was no evidence that the fee-reviewer's
opinions and conclusions were "even potentially defamatory in
nature." Id. at 340. The court explained that "[i]f such legal
recommendations and assertions, required to be rendered by
statutory and caselaw authority, were sealed based on nothing more
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than the mere possibility that they contain 'defamatory'
assertions, the judicial system would be thwarted in its mandated
responsibility to supervise litigation expenses." Id. This
reasoning treats the fact that the fee-reviewer's reports were
statutorily-mandated as relevant to the determination that they
were not scandalous or defamatory.
The Phar-Mor decision offers further support for a
reading of § 107(b)(2) that is sensitive to the purpose of the
statements at issue and the context in which they are made. Phar-
Mor involved a complaint that alleged wrongdoing by a business
entity with a general partner and several limited partners. See
191 B.R. at 677-78. Only the limited partners were named in the
complaint because the general partner was protected by an automatic
stay, see 11 U.S.C. § 362, but the limited partners were not. See
191 B.R. at 677. The limited partners sought to have the complaint
sealed, arguing that the allegations of wrongdoing were really
directed only at the general partner and that they had been named
in the complaint purely for strategic reasons, including "a need to
preserve some cause of action or be barred by a statute of
limitations, a desire to promote settlement . . . [,] and the
inability to prosecute the real party in interest, [the general
partner], due to the protection of the automatic stay in his
Chapter 11 case." Id. at 680. The bankruptcy court agreed,
holding that "a reasonable person would alter [his] opinion of
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Defendants based on a reading of the complaint, because it contains
allegations of wrongdoing against the Defendants for, in essence,
the acts of [the general partner], without an explanation of the
underlying rationale for filing the complaint in this fashion."
Id. The court's references to the strategic reasons for filing the
complaint and the complaint's resulting propensity to mislead the
public indicate that it considered the plaintiffs' improper reasons
for filing the complaint relevant to its determination that the
statements at issue were scandalous or defamatory.
In short, both the case law and the interpretation of
sources analogous to § 107(b)(2) support a context-sensitive
approach to the exception. We agree with the district court that
"to implicate § 107(b)(2) in the context of potentially untrue
material, the information would also have to be irrelevant [or]
included for improper ends." Under this reading of § 107(b)(2), as
Congress intended, protection of papers filed in a bankruptcy case
will be "the exception rather than the rule." Hope, 38 B.R. at
425.
The district court alluded to one other category of
potentially untrue material that may implicate § 107(b)(2):
material that is "so misleading in context as to be deemed facially
inaccurate." The court appears to have derived this category, like
the improper ends test, from Phar-Mor. See 191 B.R. at 680. The
district court did not explain, however, what it means for material
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to be "so misleading in context as to be facially inaccurate," nor
did it explicitly consider the material in the Report with
reference to this standard. Having pondered this language for some
time, we think its meaning is most akin to the test adopted by the
bankruptcy court. Alternatively, it may just be another way of
saying that material is potentially untrue. In any event, unlike
the other categories set forth in the district court's thoughtful
analysis, we find the category "so misleading in context as to be
facially inaccurate" unhelpful. Even the material at issue in
Phar-Mor, the apparent source of the "so misleading in context"
standard, could also be described as triggering the § 107(b)(2)
exception based on its untruthfulness or its potential
untruthfulness and its inclusion in the complaint for an improper
end. Hence, we will not include this category within the
additional showing required by § 107(b)(2) for material that is
potentially untrue.
We therefore conclude that material that would cause a
reasonable person to alter his opinion of an interested party
triggers the protections of § 107(b)(2) based on a showing that
either (1) the material is untrue, or (2) the material is
potentially untrue and irrelevant or included within a bankruptcy
filing for an improper end.
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B. Application of § 107(b)(2)
Both the bankruptcy court and the district court
concluded that the material in the Report did not fall within the
§ 107(b)(2) exception, and therefore that the Report had to be
publicly accessible. Although the district court made its
determination based on a standard similar to the one set forth in
this opinion, the bankruptcy court did not. Specifically, the
bankruptcy court did not recognize that, under certain
circumstances, material that is potentially untrue, in addition to
material that a court has determined to be untrue, can trigger the
protections of § 107(b)(2). The Gittos assert that if both they
and the bankruptcy court misapprehended the standard for applying
§ 107(b)(2), they are "entitled, at the least, to the opportunity
to argue for impoundment to the Bankruptcy Court under the
appropriate standard [and] to point out particular problems with
the Report." As the Gittos point out, we have remanded at least
once in the past to allow the court of first instance to "evaluate
the plaintiffs' complaints in light of the standard [announced on
appeal]." Agosto-de-Feliciano v. Aponte-Roque, 889 F.2d 1209, 1223
(1st Cir. 1989) (en banc).
We conclude, however, that there is no need for a remand
in this case because "application of the correct legal standard
could lead to only one conclusion." Ward v. Comm'r, 211 F.3d 652,
656 (1st Cir. 2000) (quoting Schaal v. Apfel, 134 F.3d 496, 504 (2d
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Cir. 1998)); see also In re R & R Assocs. of Hampton, 402 F.3d 257,
270 (1st Cir. 2005) (explaining that "[w]e have considered
remanding the case to the district and bankruptcy courts for
further factfinding . . . but see no need to impose . . . on the
courts' time" because, based on the record, "no reasonable
factfinder" could disagree as to the result). At most, the
material in the Report is potentially untrue. Potentially untrue
statements are defamatory within the meaning of § 107(b)(2) only if
they are also irrelevant or included for improper ends. The
contents of the Report do not meet this standard.
1. Untruthfulness
The bankruptcy court concluded that the parties seeking
protection under § 107(b)(2) had not provided proof that any of the
material in the Report is inaccurate. The Gittos do not directly
challenge that ruling on appeal. Instead, as will usually happen
in these § 107(b)(2) cases, the Gittos' criticism demonstrates only
that some material in the Report is potentially untrue. For
example, the Gittos assert that "[o]ne of the greatest problems
with the Report is the way the Examiner attributes wrongdoing to
the 'Gitto [P]rincipals,' a group including more than Charles and
Garry Gitto, while conceding that he cannot 'allocate [blame]
precisely among the three [principals].'" The Gittos also complain
that "some of the harshest allegations against [them] are highly
misleading in that there is a sharp disconnect between the evidence
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collected by the Examiner and the sweeping conclusions he is
willing to advance." These contentions do not establish that the
Report is untrue, nor would they obligate a bankruptcy court to
engage in additional factfinding on the issue. They demonstrate
only that material in the Report may later turn out to be untrue,
a point which is beyond dispute in light of the acknowledgment in
the Report that "[c]ontinued investigation may lead to evidence
which supports or contradicts . . . statements [herein]." Given
this caveat and the preliminary nature of the Report, we will
assume, as did the district court, that the Report includes
potentially untrue material that would cause a reasonable person to
alter his opinion of the Gittos.
2. Irrelevance or inclusion for improper ends
Material that is potentially untrue and that would cause
a reasonable person to alter his opinion of an interested party
triggers the protections of § 107(b)(2) if it is also irrelevant to
the case in which it was filed or if it is included within a filing
for improper ends. Neither of those circumstances is present here.
a. Irrelevance
The bankruptcy court appointed the Examiner pursuant to
11 U.S.C. § 1104(c), which contemplates an examiner "conduct[ing]
such an investigation of the debtor as is appropriate, including an
investigation of any allegations of fraud, dishonesty,
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incompetence, misconduct, mismanagement, or irregularity in the
management of the affairs of the debtor of or by current or former
management of the debtor." Over the three months following his
appointment, the Examiner engaged in an extensive investigation of
pre-petition irregularities and misconduct. As the Examiner -- an
appellee in this case -- relates in his brief, he "interviewed
dozens of witnesses, reviewed thousands of pages of documents, and
prepared a Report running more than 150 pages." See 11 U.S.C.
§ 1106(a)(4)(A) (requiring the Examiner to file a statement of his
investigation).
The Report catalogs precisely the types of allegations
described in 11 U.S.C. § 1104(c) -- namely, "irregularit[ies] in
the management of the affairs of the debtor [Gitto Global] of or by
. . . former management of the debtor."8 Id. While these
allegations may affect the reputations of those at whom they are
directed, that possibility, standing alone, does not render them
defamatory within the meaning of § 107(b)(2). The information in
the Report is directly relevant to the Report's purpose, which the
Examiner describes in his brief as creating "a base of information
sufficient [for creditors] to assess whether they may have claims
against management, shareholders, or others who have worked with
8
All of Gitto Global's officers and directors resigned and
were replaced by an independent restructuring officer immediately
before the company filed for bankruptcy. All of the pre-petition
activity described in the Report therefore involves only former
management.
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the corporation." The fact that the Report will be used by
creditors and shareholders to assess their claims, rather than by
the court to adjudicate a dispute, does not make the material
included therein any less relevant to the bankruptcy case. The
relevancy of the material in the Report is similarly unaffected by
the fact that the Report discusses pre-petition conduct, as opposed
to ongoing conduct. As the district court recognized, "the avenues
a debtor may pursue to recover for arguably improper activity by
its former officers and their associates remains of concern to the
mission of the bankruptcy court." (Emphasis added.)
b. Improper ends
The question of whether the potentially untrue material
was included for an improper end is also no help to the Gittos'
§ 107(b)(2) claim. The Examiner's disinterested status in this
case is not in question, nor is there any indication whatsoever
that he drafted the Report in bad faith or otherwise included the
allegedly defamatory material for an improper purpose. Cf. Phar-
Mor, 191 B.R. at 679-80 (concluding that a complaint that was filed
for "strategic reasons which would not be apparent[] on its face"
fell within the § 107(b)(2) exception).
The Gittos therefore cannot show that potentially untrue
material in the Report is either irrelevant or included for an
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improper end. Therefore, the bankruptcy court did not err in
denying their request for protection under § 107(b)(2).9
IV.
To qualify for protection under the § 107(b)(2) exception
for defamatory material, an interested party must show (1) that the
material at issue would alter his reputation in the eyes of a
reasonable person, and (2) that the material is untrue or that it
is potentially untrue and irrelevant or included for an improper
end. The Gittos cannot make such a showing with regard to the
Report. Therefore, upon issuance of the mandate, and once the
Examiner deletes all bank account numbers included in the Report
and its exhibits pursuant to the unchallenged ruling of the
9
In concluding that there is a right of public access to the
Report, we also reject the Gittos' argument that public disclosure
of the Report will "create a genuine risk" of harm to their Sixth
Amendment right to trial by an impartial jury. Although the Gittos
emphasize that a federal grand jury is investigating "the same
matters investigated by the Examiner," they have not indicated that
any criminal charges have been filed in connection with the grand
jury's investigation, much less that a trial is imminent. Concerns
that disclosure of the Report would taint a jury pool are therefore
entirely speculative. Moreover, there are many ways to protect a
criminal defendant's right to a fair trial without enjoining the
public disclosure of information. For example, a court may use the
voir dire process to "identify those jurors whose prior knowledge
of the case would disable them from rendering an impartial
verdict," Press-Enterprise Co. v. Superior Court, 478 U.S. 1, 15
(1986), or transfer the proceeding to a different venue, see Fed.
R. Crim. P. 21(a). In light of these alternatives and the highly
speculative nature of the Gittos claim, the Sixth Amendment does
not require sealing or redaction of the Report.
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bankruptcy court regarding the redaction of confidential
information, the Report shall be filed publicly.
So ordered. Judgment affirmed.
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