An automatic stay is a powerful tool in a bankruptcy case.1 It is a temporary federal injunction that stops most collection efforts by creditors against debtors and their property, unless granted permission by the bankruptcy court.2 The automatic stay is one of the most beneficial features of bankruptcy, putting creditors on equal footing in regard to their claims and providing debtors temporary reprieve from aggressive collection activities as they seek to restore their financial standing.3 The automatic stay, however, is not without limits.
Also powerful is the public’s constitutional right of access to court records. The Delaware Court of Chancery, for example, is particularly mindful of the sensitive and proprietary nature of the information contained in filings, allowing for confidential treatment of filings if good cause exists.4 The Court of Chancery, however, will not rubber-stamp the approval of confidential filings.5 Indeed, even if a document is marked confidential and the designation is not challenged, the Court of Chancery can sua sponte challenge the confidential designation or redaction.6 Yet, sometimes there is a proclivity on the part of counsel to over-designate documents as confidential.7
These above principles recently collided. On January 14, 2020, the Court of Chancery required defendants, all of whom had recently filed for bankruptcy and where the automatic stay was still in effect, to nonetheless comply with their obligations to provide proper confidentiality designations and redactions to filings made in the Court of Chancery prior to these defendants filing bankruptcy. Specifically, the Court of Chancery noted that the “[b]ankruptcy stay does overcome the necessity of responding to” a notice challenging certain confidentiality designations and redactions, explaining that the notice was “based in the public interest, not litigants’ interest.” See TA Dispatch LLC v. Celadon Trucking Services, Inc., et al., C.A. No. 2019-0960-SG (Del. Ch. Jan. 14, 2020) (Letter) (Transaction ID 64619463).
The Court of Chancery’s order in TA Dispatch LLC directing the defendants to provide proper designations and redactions for the pre-bankruptcy filings again demonstrates the court’s commitment to open, publicly accessible proceedings. The order further demonstrates that an automatic stay does not relieve a party in the Court of Chancery from complying with Rule 5.1. Thus, parties must also be thoughtful when providing confidentiality designations and redactions, even when the case has been stayed.
Takeaway
When a party in the Court of Chancery has designated certain information as confidential, and thus filed those documents with the court under seal, a subsequent bankruptcy action involving that party does not alleviate the party’s obligation to provide proper confidentiality designations and redactions – even though the Chancery action is technically “stayed” under 11 U.S.C. section 362.
- See In re W.R. Grace & Co., 475 B.R. 34, at 157 (D. Del. 2012) (“The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws.”).
- See 11 U.S.C. section 362(a).
- See In re W.R. Grace & Co., 475 B.R. 34, at 157 (“Without [the automatic stay], certain creditors would be able to pursue their own remedies against the debtor’s property. Those who acted first would obtain payment of the claims in preference to and to the detriment of other creditors.”).
- See Ct. Ch. R. 5.1(b) (“After the commencement of an action pursuant to Rule 3(a), any person may request that the Court order the Register in Chancery to permit Documents to be filed confidentially and not available for public access (“Confidential Treatment”).”); See also Kronenberg v. Katz, 872 A.2d 568, 607 (Del. Ch. 2004) (“In this court, for example, the tradition of open proceedings is reflected in Rule [5.1] itself, which places strict limits on parties’ ability to maintain filings under seal.”).
- See Al Jazeera Am., LLC v. AT&T Servs., Inc., 2013 WL 5614284, at *3 (Del. Ch. Oct. 14, 2013) (“Rule 5.1 makes clear that most information presented to the Court should be made available to the public.”).
- See Chemours Co. v. DowDuPont Inc., 2019 WL 2404817, at *1 (Del. Ch. June 7, 2019) (explaining the matter came before the court “sua sponte, upon review of the ‘public version’ of the Complaint purportedly filed in compliance with Court of Chancery Rule 5.1 ….”).
- See Southpaw Credit Opportunity Master Fund LP v. Advanced Battery Techs., Inc., 2015 WL 915486, at *10 (Del. Ch. Feb. 26, 2015) (expressing skepticism about a confidentiality order that “assumes that every record [the defendant] produces for inspection is confidential and does not provide [the plaintiff] any opportunity to contest the confidentiality of a document.”).
Client Alert 2020-503
