Luxeyard, Inc. v. Bell, Civil Action No. 13-cv-02990-MSK-KMT

• Decision Date: 27 January 2015
• Docket Number: Civil Action No. 13-cv-02990-MSK-KMT
• Parties: LUXEYARD, INC., Intervenor Plaintiff, v. AARON BELL, CHRISTOPHER BELL, RACHEL BELL and WILLIAM BELL, Defendants.
• Court: U.S. District Court — District of Colorado

LUXEYARD, INC., Intervenor Plaintiff, v. AARON BELL, CHRISTOPHER BELL, RACHEL BELL and WILLIAM BELL, Defendants.

Civil Action No. 13-cv-02990-MSK-KMT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

January 27, 2015

ORDER AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

Magistrate Judge Kathleen M. Tafoya

This matter comes before the court on "Defendants' Motion to Dismiss LuxeYard, Inc.'s Complaint in Intervention Pursuant to Fed. R. Civ. P. 12(b)(6)" filed under Level One restriction on June 20, 2014. (Doc. No. 66.)¹ Plaintiff LuxeYard Inc.'s ("LuxeYard") Response was filed on July 11, 2014, and Defendants Reply was filed on July 25, 2014. (Doc. No. 77). The court also addresses herein "Defendants' Unopposed Motions to Restrict Access to Motion to Dismiss and Related Exhibits" (Doc. No. 68) and "Defendants' Unopposed Motion to Restrict Access to Reply in Support of Motion to Dismiss" (Doc. No. 80).

The court has outlined a factual background of this case in the Recommendation of United States Magistrate Judge issued contemporaneously with the present Order and Recommendation. In short, in its Complaint in Intervention, LuxeYard asserts a claim for violations of Section 16(b) of the Securities Exchange Act of 1934, as well as state law claims for civil conspiracy, aiding and abetting, and unjust enrichment, based on Defendants' alleged participation in a pump and dump scheme involving LuxeYard's stock.

In their present Motion to Dismiss, Defendants assert that LuxeYard's claims in this action are barred by a Confidential Settlement Agreement and Mutual Release (the "Settlement Agreement) executed between LuxeYard, among others, on the one hand, and Frederick Huttner ("Huttner") and Huttner 1999 Partnership Ltd. ("Huttner Partnership"), among others, on the other hand. (Mot. Ex. 2, Declaration of Andrew Goforth [Goforth Decl.], at Ex. A [Settlement Agmt.].) The Settlement Agreement was executed to resolve claims asserted by LuxeYard, LY Retail, and Amir Mireskandi against Huttner and Huttner 1999 Partnership, among others, in Mireskandari, et al. v. Gann, et al., filed as Civil Action No. 4:12-cv-02480 in the United States District Court for the Southern District of Texas (the "Settled Action").

I. MOTIONS TO RESTRICT

The court first turns to Defendants' Motions to Restrict. Defendant argues that their Motion to Dismiss and Reply should be held under Level One restriction because they quote and discuss the Settlement Agreement, as well as two versions of Huttner's will. Defendants also seek to restrict the exhibits attached to their Motion to Dismiss, which include a full version of the Settlement Agreement and the two versions of Huttner's will.

The Supreme Court has acknowledged a common-law right of access to judicial records. Nixon v. Warner Communications, Inc., 435 U.S. 589, 597 (1978). This right is premised upon the recognition that public monitoring of the courts fosters important values such as respect for the legal system. See In re Providence Journal Co., 293 F.3d 1, 9 (1st Cir. 2002). Judges have a responsibility to avoid secrecy in court proceedings because "secret court proceedings are anathema to a free society." M.M. v. Zavaras, 939 F. Supp. 799, 801 (D. Colo. 1996).

Thus, there is a presumption that documents essential to the judicial process are to be available to the public. However, this presumption may be overcome, and court filings or proceedings may be restricted, where the public's right of access is outweighed by interests which favor nondisclosure. See United States v. McVeigh, 119 F.3d 806, 811 (10th Cir. 1997). The court has substantial discretion in determining whether public access to a particular court record should be restricted. Nixon, 435 U.S. at 599.

In this District, Local Rule 7.2 governs what information must be submitted in support of restricting access to a court document. Specifically, a motion to restrict public access must:

(1) identify the document or the proceeding for which restriction is sought;

(2) address the interest to be protected and why such interest outweighs the presumption of public access . . .;

(3) identify a clearly defined and serious injury that would result if access is not restricted;

(4) explain why no alternative to restricted access is practicable or why only restricted access will adequately protect the interest in question (e.g. redaction, summarization, restricted access to exhibits or portions of exhibits); and

(5) Identify the restriction level sought.

D.C.COLO.LCivR 7.2(c).

The court does not agree that the Settlement Agreement warrants restriction. Defendants assert that restriction of the Settlement Agreement is warranted because (1) it contains a confidentiality provision that bars public release of the terms contained therein unless required by court order or other operation of law and (2) courts have otherwise recognized the public policy of promoting settlement by affording the parties confidentiality with regard to the terms upon which settlement is achieved. However, in their Motion to Dismiss, Defendants concede that the Settlement Agreement was publicly filed by Khaled Alattar, the former plaintiff in this action, in LuxeYard, Inc. v. Alattar, a case pending as Civil Action No. 4:13-cv-00251 in the United States District Court for the Southern District of Texas. There is nothing in the record to suggest that the parties to the Settlement Agreement have moved to seal or restrict public access to the Settlement Agreement in that case. Because the Settlement Agreement has indisputably been made public in another action, the court cannot find that the parties to the Settlement Agreement would suffer a clearly defined and serious injury if the Settlement Agreement is not restricted in this case. According, the Settlement Agreement will be unrestricted.

The court also cannot find that restriction is warranted for Defendants' Motion to Dismiss and Reply. Although these filings discuss and quote the Settlement Agreement extensively, as discussed above, the Settlement Agreement is already a matter of public record. Further, although the court finds below that Huttner's wills are properly restricted, Defendants' Motion to Dismiss and Reply do not quote or discuss Huttner's wills in any detail. Rather the Motion to Dismiss and Reply only briefly cite to the wills to establish that Defendants are Huttner's heirs. The court does not believe the fact that Defendants are Huttner's heirs is sufficientlycontroversial to warrant restriction—particularly when it is a fact essential to the arguments raised in Defendants' Motion to Dismiss. Riker v. Fed. Bureau of Prisons, 315 F. App'x 752, 755 (10th Cir. 2009) (a "strong presumption of access attaches" to documents that are used to determine litigants' substantive rights). Moreover, this fact is now a matter of public record because it is effectively admitted in LuxeYard's Response, which was not filed under restriction. (See Resp. at 6.) Accordingly, Defendants' Motion to Dismiss and Reply will be unrestricted.

The court does agree, however, that the two versions of Huttner's will are properly restricted from public access. The court agrees with Defendants that the wills are clearly private in nature and not appropriate for public scrutiny. Further, Huttner is not a party to this action, and therefore has not abandoned his interest in maintaining the confidentiality of his wills. Finally, as discussed, the wills have been tendered only to demonstrate that Defendants are Huttner's heirs. Because that fact is not in dispute, the court finds that the public's right of access to Huttner's wills is outweighed by Huttner's privacy interest.²

Finally, the court notes that, although they were filed under restriction, Defendants have not made any argument that the remaining exhibits attached to Defendants' Motion to Dismiss warrant restriction. As such, these exhibits will also be unrestricted.

II. MOTION TO DISMISS

As a threshold matter, although Defendants Motion is entitled "Motion to Dismiss LuxeYard's Complaint in Intervention Pursuant to Fed. R. Civ. P. 12(b)(6)," Defendants ask thecourt to convert the Motion to Dismiss to a motion for summary judgment, pursuant to Federal Rule of Civil Procedure 12(d), in order to consider the Settlement Agreement and other documents attached to their Motion.³ (Mot. at 1-2.) Rule 12(d) provides that "If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion."

LuxeYard has not objected to Defendants' request to convert their Motion to Dismiss to a motion for summary judgment. Further, the court finds that Defendants' request in their Motion presented LuxeYard with the opportunity to present all materials pertinent to the motion. Accordingly, the court finds it appropriate to convert Defendants' Motion to Dismiss into a motion for summary judgment.

A. Legal Standard

Summary judgment is appropriate if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party bears the initial burden of showing an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). "Once the moving party meets this burden, the burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a material matter." Concrete Works, Inc. v. City & County of Denver, 36 F.3d 1513, 1518 (10th Cir. 1994) (citing Celotex, 477 U.S. at 325). The nonmoving partymay not rest solely on the allegations in the pleadings, but must instead designate "specific facts showing that there is a genuine issue for trial." Celotex, 477 U.S. at 324; see also Fed. R. Civ. P. 56(c). A disputed...