S.E.C. v. Van Waeyenberghe

• Decision Date: 17 May 1993
• Docket Number: No. 92-1080,92-1080
• Citation: 990 F.2d 845
• Parties: Fed. Sec. L. Rep. P 97,452, 25 Fed.R.Serv.3d 963, 21 Media L. Rep. 1431 SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant, v. Gary VAN WAEYENBERGHE and Carl Leibowitz, Defendants, and Howard K. Schwartz, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 845

990 F.2d 845

Fed. Sec. L. Rep. P 97,452, 25 Fed.R.Serv.3d 963,

21 Media L. Rep. 1431

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant, v. Gary VAN WAEYENBERGHE and Carl Leibowitz, Defendants, and Howard K. Schwartz, Defendant-Appellee.

No. 92-1080.

United States Court of Appeals, Fifth Circuit.

May 17, 1993.

Susan A. Yashar, James R. Brigagliano, S.E.C., Washington, DC, for plaintiff-appellant.

Howard K. Schwartz pro se.

Appeal from the United States District Court for the Northern District of Texas.

Before GOLDBERG, HIGGINBOTHAM, and EMILIO M. GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

The Securities and Exchange Commission ("SEC") appeals two district court orders sealing a transcript of proceedings and a final order of permanent injunction against Howard K. Schwartz. Because the district court abused its discretion in sealing the final order and transcript, we reverse and remand.

I

The SEC filed an injunctive action against Howard K. Schwartz, claiming that he had violated the federal securities laws. The parties gave an oral report of their settlement conference to the district court, informing the court that they could not settle because Schwartz demanded that any settlement agreement be sealed--a requirement to which the SEC could not agree. After stating that "[t]here is no reason in the world for the court to be devoting time to something where the only hangup is a matter of principle," the court ordered the parties to resume settlement negotiations.

A short while later, the parties reconvened with the district court and stated that they had agreed on a consent decree and a final order of permanent injunction against Howard K. Schwartz. However, the parties still could not agree on whether the settlement agreement should be sealed. The district court again ordered the parties to resume settlement negotiations.

After a brief recess, the parties met again with the district court, and reported for the third time that they still disagreed on whether the settlement agreement should be sealed. The district court ordered sua sponte that the case be sealed in its entirety, including any subsequently filed orders and motions. The district court then instructed the parties to resume settlement negotiations.

Soon thereafter, the parties met with the district court and informed the court that they had agreed to a settlement, including a Final Order of Permanent Injunction and Other Equitable Relief Against Howard K. Schwartz and a Consent and Undertakings of Howard K. Schwartz ¹. The SEC stated, however, that it was taking issue with the court's order that the entire case be sealed. Before addressing the SEC's objection to the order sealing the entire case, the district court signed the final order of permanent injunction, and attached to it the consent decree. The district court then stated that it would consider a motion from the SEC that all documents be unsealed except for the final order of permanent injunction; in the absence of such a motion it would leave the entire file sealed. The SEC moved that all documents be unsealed except for the final order of permanent injunction against Schwartz. The district court granted the motion.

On November 30, 1991, the district court entered a written order ("November order"), instructing the clerk to unseal all records in the case except the final order of permanent injunction. On February 7, 1992, the district court entered a second order ("February order"), sealing the Transcript of Proceedings ("transcript"). ² The SEC appeals, claiming that the district court abused its discretion in sealing the transcript and final order of permanent injunction. ³

II

A

Courts have recognized that the public has a common law right to inspect and copy judicial records. Nixon v. Warner Communications, Inc., 435 U.S. 589, 597, 98 S.Ct. 1306, 1312, 55 L.Ed.2d 570 (1978); Belo Broadcasting Corp. v. Clark, 654 F.2d 423, 429 (5th Cir.1981). However, the public's common law right is not absolute. Nixon, 435 U.S. at 598, 98 S.Ct. at 1312; see Belo, 654 F.2d at 430. "Every 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, 98 S.Ct. at 1312. Thus, the common law merely establishes a presumption of public access to judicial records. ⁴ Littlejohn v. BIC Corp., 851 F.2d 673, 678 (3d Cir.1988). Although the common law right of access to judicial records is not absolute, "the district court's discretion to seal the record of judicial proceedings is to be exercised charily." Federal Savings & Loan Ins. Corp. v. Blain, 808 F.2d 395, 399 (5th Cir.1987).

In exercising its discretion to seal judicial records, the court must balance the public's common law right of access against the interests favoring nondisclosure. See Nixon, 435 U.S. at 599, 602, 98 S.Ct. at 1312, 1314 (court must consider "relevant facts and circumstances of the particular case"); Belo, 654 F.2d at 434; see also Bank of America Nat'l Trust v. Hotel Rittenhouse, 800 F.2d 339, 344 (3d Cir.1986) (court had duty to "balance the factors favoring secrecy against the common law presumption of access"); Newman v. Graddick, 696 F.2d 796, 803 (11th Cir.1983) ("The historic presumption of access to judicial records must be considered in the balance of competing interests." (citing Belo )). Because "[t]he decision as to access is one left to the sound discretion of the trial court," Nixon, 435 U.S. at 599, 98 S.Ct. at 1312, we review the district court's decision to seal the settlement agreement for abuse of discretion. See id. at 598-600, 98 S.Ct. at 1312-13; Belo, 654 F.2d at 430-31; Newman, 696 F.2d at 803 (citing Belo ).

B

The SEC argues that the district court abused its discretion by failing to weigh the competing interests prior to sealing the final order. ⁵ We agree.

Once a settlement is filed in district court, it becomes a judicial record. Bank of America Nat'l Trust, 800 F.2d at 345. The presumption in favor of the public's common law right of access to court records therefore applies to settlement agreements that are filed and submitted to the district court for approval. Id.; see also Brown v. Advantage Engineering, Inc., 960 F.2d 1013, 1015-16 (11th Cir.1992) (applying presumption to record where parties had settled case); Republic of Philippines v. Westinghouse Elec. Corp., 949 F.2d 653, 660 (3d Cir.1991) (presumption applies to settlement agreements) (citing Bank of America Nat'l Trust); EEOC v. Erection Co., 900 F.2d 168, 169-70 (9th Cir.1990) (applying presumption to a consent decree that had been filed as part of a settlement agreement). The final order of permanent injunction against Schwartz was filed and submitted to the district court for approval, and therefore the presumption in favor of the public's common law right of access to judicial records is applicable to the settlement documents, including the final order and transcript.

We find no evidence in the record that the district court balanced the competing interests prior to sealing the final order. First, the district court made no mention of the presumption in favor of the public's access to judicial records. Second, the district court did not articulate any reasons that would support sealing the final order. The district court merely commented that the public, in some circumstances, had a right to know that Schwartz had been enjoined, and that the public's interest in that information could be protected either by allowing the public access to the final order of permanent injunction or by requiring that Schwartz disclose, in certain circumstances, that he had been enjoined. ⁶ Because Schwartz would be required by law, under certain circumstances, to disclose that he had been enjoined, see 17 C.F.R. 229.401(f)(3) (1992), and because Schwartz indicated that he would--as part of the settlement agreement--agree to disclose, under certain circumstances, that he had been enjoined, ⁷ the district court found that disclosure by Schwartz would be sufficient to protect the public's right to know that Schwartz had been enjoined. ⁸ Therefore, the district court sealed the final order.

Although the public may have a right to the information that Schwartz was enjoined, that right cannot be equated with the public's right of access to judicial records. The public's right to information does not protect the same interests that the right of access is designed to protect. "Public access [to judicial records] serves to promote trustworthiness of the judicial process, to curb judicial abuses, and to provide the public with a more complete understanding of the judicial system, including a better perception of its fairness." Littlejohn, 851 F.2d at 682; see also Wilson v. American Motors Corp., 759 F.2d 1568, 1571 (11th Cir.1985) ("The real focus of our inquiry is on the rights of the public in maintaining open records and the 'check[ ] on the integrity of the system.' " (quoting Brown & Williamson Tobacco Corp. v. FTC, 710 F.2d 1165, 1178-79 (6th Cir.), cert. denied, 465 U.S. 1100, 104 S.Ct. 1595, 80 L.Ed.2d 127 (1984)).

Furthermore, requiring Schwartz to disclose the injunction is no substitute for allowing access to the transcript and final order of permanent injunction, because the latter allows the public to verify disclosures that Schwartz is required to make under the securities laws. Schwartz may not make the disclosure in all instances where he is required to do so; ⁹ and even if Schwartz does disclose the information, the public will not be able to verify the accuracy of the disclosure, unless the public is granted access to the transcript and final order. In addition, a member of the public may want to know that Schwartz has been enjoined where he is not required by the federal securities laws to disclose that fact: the disclosure requirements of the federal securities laws are not coextensive...