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  1. 1. IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWAREIn re: : Chapter 11 :ALLIED SYSTEMS HOLDINGS, INC. : : : Bankruptcy No. 12-11564-CSS : Alleged Debtor, : : : ALLIED SYSTEMS, Ltd. : Bankruptcy No. 12-11565-CSS : Alleged Debtor, : Hearing Date: May 31, 2012 @ :30 p.m Objection Deadline: May 29, 2012 @ 2:00 p.m. UNITED STATES TRUSTEE=S OMNIBUS OBJECTION RE: PETITIONING CREDITORS’ MOTION TO FILE REDACTED VERSIONS OF CONFIDENTIAL PLEADINGS AND TO FILE CERTAIN EXHIBITS THERETO UNDER SEAL; MOTION TO FILE UNDER SEAL UNREDACTED VERSION OF ALLEGEDDEBTOR’S RESPONSE TO PETITIONING CREDITORS’ MOTION PURSUANT TO DEL. BANKR. L.R. 9006-1(e) FOR AN ORDER SHORTENING TIME; ALLEGED DEBTOR’S MOTION TO FILE UNDER SEAL UNREDACTED VERSION OF THEMOTION OF ALLEGED DEBTORS TO TRANSFER VENUE OF THIS CASE TO THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION, UNDER SEAL (D.E. 10, 31, 32) Roberta A. DeAngelis, the United States Trustee for Region Three (“U. S. Trustee”), by andthrough her counsel, and files her Omnibus Objection to Petitioning Creditors‟ Motion To FileRedacted Versions Of Confidential Pleadings And To File Certain Exhibits Thereto Under Seal;Motion To File Under Seal Unredacted Version Of Alleged Debtor‟s Response To PetitioningCreditors‟ Motion Pursuant To Del. Bankr. L.R. 9006-1(E) For An Order Shortening Time; AllegedDebtor‟s Motion To File Under Seal Unredacted Version Of The Motion Of Alleged Debtors To 1
  2. 2. Transfer Venue Of This Case To The United States Bankruptcy Court For The Northern District OfGeorgia, Atlanta Division, Under Seal (D.E. 10, 31, 32, “Motions”)1 as follows: 1. This Court has jurisdiction to hear this Response. 2. Pursuant to 28 U.S.C. 586, the UST is charged with overseeing the administrationof Chapter 11 cases filed in this judicial district. This duty is part of the UST=s overarchingresponsibility to enforce the bankruptcy laws as written by Congress and interpreted by the courts.See United States Trustee v. Columbia Gas Sys., Inc. (In re Columbia Gas Sys., Inc.), 33 F.3d 294,295-96 (3d Cir. 1994) (noting that UST has “public interest standing” under 11 U.S.C. 307, whichgoes beyond mere pecuniary interest); Morgenstern v. Revco D.S., Inc. (In re Revco D.S., Inc.), 898F.2d 498, 500 (6th Cir. 1990) (describing the UST as a “watchdog”). 3. The UST has standing to be heard with regard on this Response. 11 U.S.C. 307. STATEMENT OF FACTS 4. These cases were commenced by the filing of involuntary petitions for relief on May17, 2012 by The Petitioning Creditors. Filed concurrently with the Petition was a Statement ofPetitioning Creditors in Support of the Involuntary Chapter 11 Petitions Filed Against AlliedSystems Holdings, Inc. and Allied Systems, Ltd (D.E. 9, “Statement of Petitioning Creditors”); and,Expedited Motion of Petitioning Creditors for the Appointment of a Trustee (D. E. 13, “TrusteeMotion”). Each of these two docket entries was publicly filed containing numerous redactions. ThePetitioning Creditors filed their Motion to File Redacted Versions of Confidential Pleadings and toFile Certain Exhibits Thereto Under Seal (D. E. 10, “Petitioning Creditors‟ Seal Motion”).1 Terms shall have the same meaning as ascribed to them in the Motions. 2
  3. 3. 5. On May 21, 2012, the Alleged Debtors filed their Motion To File Under SealUnredacted Version Of Alleged Debtors‟ Response To Petitioning Creditors‟ Motion Pursuant ToDel. Bankr. L.R. 9006-1(E) For An Order Shortening Time; and, Motion To File Under SealUnredacted Version Of The Motion Of Alleged Debtors To Transfer Venue Of This Case To TheUnited States Bankruptcy Court For The Northern District Of Georgia, Atlanta Division, Under Seal(D.E. 32). Collectively, these two motions are referred to herein as “Alleged Debtors‟ SealMotions”. Each of these motions was publicly filed with numerous redactions. The Alleged Debtoris a non-public company. 6. Pursuant to 11 U. S. C. § 107(c), the U. S. Trustee has been provided with completecopies of the various pleadings which the parties hereto seek to seal. Most of the redacted materialcontains routine financial information typically found in a First Day Affidavit filed in voluntarychapter 11 cases filed in this District. 7. The United States Trustee does not oppose the entry of the orders sought pending theentry of an order for relief. However, any orders entered should expire of their own terms upon theentry of an order for relief since this case will no longer be proceeding as a contested involuntarycase between the Petitioning Creditors and Alleged Debtors, but as a debtor in public bankruptcyproceedings before the court. At this time, the alleged confidential information should no longer besealed since it is information that will be germane to creditors and parties in interest. 3
  4. 4. I. Sealing Facts Required to be Disclosed Violates the Public Policy of Full Disclosure; 11 U.S.C. Section 107(b) and FRBP 9018 Do not Apply 8. The Supreme Court stated in Nixon v. Warner Communications, Inc., 435 U.S. 589,591 (1978): “It is clear that the courts of this country recognize a general right to inspect and copypublic records and documents, including judicial records and documents.” Unanimity in the caselaw demonstrates that there is a common law right of access to judicial proceedings and to inspectjudicial records in civil matters. In Orion Pictures Corp. v. Video Software Dealers Assoc., 21 F.3d24 (Cir. 2 1994), the Court stated the general rule as: “...a strong presumption of public access tocourt records...This preference for public access is rooted in the public=s first amendment right toknow about the administration of justice. It helps safeguard the >integrity, quality, and respect in ourjudicial system.” 21 F. 3d 24, 26 (citations omitted). See also, In re Continental Airlines, 150 B.R.334 (D. De. 1993), where the court noted “...the strong presumption in favor of public access tojudicial records and papers...”. Accord, In re Foundation for New Era Philanthropy, 1995 WL478841 (E.D. Pa. 1995); In re Barney=s Inc., 201 B.R. 703 (Bankr. S.D.N.Y. 1996). This commonlaw has been codified in Section 107(a) of the Bankruptcy Code. 9. In the bankruptcy context, limited exceptions to the general rule are contained in theCode and Rules. Bankruptcy Code 107(b) provides as follows: 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 4
  5. 5. (2) protect a person with respect to scandalous or defamatory matter contained in a paper filed in a case under this title.FRBP 9018 essentially incorporates the substance of Section 107(b), and adds to the type of matterssubject to seal, the protection of “...governmental matters that are made confidential by statute orregulation.” This item is not applicable in the present case as there is no allegation thatgovernmental matters are implicated. 10. As exceptions to the common law rule, the burden is on the moving party to show thata request to place documents under seal falls within the parameters of Bankruptcy Code Section107(b) and FRBP 9018 by demonstrating that: “...that the interest in secrecy outweighs thepresumption in favor of access.” See In re Continental Airlines, 150 B.R. 334 (D. De. 1993).The inquiry then is whether or not the matter sought to be placed under seal fits within any of thecategories included within either of Section 107(b) or FRBP 9018. 11. In Orion, supra, Court defined commercial information as: “...information whichwould cause an >unfair advantage to competitors by providing them information as to the commercialoperations of the debtor‟.” (21 F. 3d 24, 27 (citations omitted). The Court determined that Section107(b) applied to a promotional agreement between the debtor and McDonald=s, because theinformation in the agreement, if disclosed, could adversely impact the debtor=s ability to negotiatefuture promotion agreements, thus giving competitors an unfair advantage. In re Alterra HealthcareCorp., 353 B.R. 66 (Bankr. D. Del. 2006), adopted the Orion definition of protectable confidentialor commercial information. 12. The identity of a proposed investor and the terms of a Preliminary Proposal Letterseeking a due diligence advance of $1 million from the debtor was not subject to Section 107(b) 5
  6. 6. protection. In re Barney=s, Inc., 201 B.R. 703 (Bankr. S.D.N.Y. 1996). The debtor claimed that thisinformation was commercial information. The Court rejected this contention, restating the definitionfrom Orion, supra, and adding the inclusion of information related to the trading of securities. TheBarney=s Court found that neither the potential investor=s identity nor the terms of the PreliminaryProposal Letter were subject to protection by either Section 107(b) or FRBP 9018: “The PotentialInvestor=s desire to avoid the professional embarrassment associated with the unsuccessful pursuit ofa deal is no basis to grant this motion.” 13. An attempt to place the report of a fee examiner under seal pursuant to Section 107(b)or FRBP 9018 was rejected by the Court in In re Continental Airlines, 150 B.R. 334 (D. De. 1993).In this case, the District Court found that the Bankruptcy Court had abused its discretion in orderingthe report placed under seal and reversed the lower court. The Court rejected any claim of potentialscandalous or defamatory possibilities, stating: “If such legal recommendations and assertions, required to be rendered by statutory and case law authority, were sealed, based on nothing more than the mere possibility that they contain „defamatory‟ assertions, the judicial system would be thwarted in its mandated responsibility to supervise litigation expenses...clearly the public=s interest in seeing that the judicial mandate to control litigation expenses far outweighs any private interest in secrecy...” 150 B.R. 334, 341. The Court then quoted directly from the United States‟ brief: “[It] is disingenuous...for [appellees] and [their] lawyers to argue that they...should be the sole guardians of the only prejudicial, independent analysis of their attorneys=...conduct. Indeed, it follows without any thought whatsoever that the Court=s truth-finding process (not to mention the efficient administration of the Bankruptcy Code) can only be enhanced by the wide dissemination of the [fee reviewer=s] reports...” 150 B.R. 334, 341. 6
  7. 7. 14. There was no basis to seal the fee examiner=s report from public view in ContinentalAirlines, supra. Likewise here, “...the Court=s truth-finding process (not to mention the efficientadministration of the Bankruptcy Code)...” (150 B.R. 334, 341) requires full disclosure. 15. Although the Third Circuit has not addressed Section 107(b) or FRBP 9018, it hasexamined the common law right of public access in the context of confidential settlementagreements. In Pansy v. Borough of Stroudsburg, 23 F. 3d 772 (3 Cir. 1994), the news media soughtan order challenging the sealing of a settlement agreement in a civil rights case between Stroudsburgand its former police chief. The court reaffirmed the common law rule: “We have previouslyrecognized a right of access to judicial proceedings and judicial records, and this right of access is„beyond dispute‟.” (23 F. 3d 772, 780-781). In the absence of provisions or rules like BankruptcyCode Section 107(b) or FRBP 9018, the Third Circuit adopted a balancing test between the need forconfidentiality or privacy and the right to know, concluding: “If a settlement agreement involvesissues or parties of a public nature, and involves matters of legitimate public concern, that should bea factor weighing against entering or maintaining an order of confidentiality.” (23 F.3d 772, 788). 16. In each of the above cases in which the moving party sought to seal documents tootherwise escape the disclosure requirements of various Bankruptcy Code sections or rules, such asFRBP 1007 in New Era, supra, or the fee examiner=s report in Continental Airlines, supra, the Courtrejected the requests. As a pending involuntary petition this case is presently a lawsuit in which thePetitioning Creditors are seeking for judgment the entry of an order for relief. 17. Any relief granted should be narrowly tailored. See In re Lomas FinancialCorporation, 1991 WL 21231, at *2 (S.D.N.Y. 1991). Only those portions of the pleadings that 7
  8. 8. comport with the requirements of either Bankruptcy Code Section 107 or FRBP 9018 should beredacted and sealed. The balance should become part of the public record. 18. Because the Alleged Debtors here are private, pending the entry of an order for relief,the U.S. Trustee does not oppose the granting of the relief sought by the various parties. However,if an order for relief should be entered in this case, the material which the parties currently seek toseal is the sort of basic and germane information typically contained in first day affidavits filed inthis Court. Upon the entry of an order for relief, the underlying policies of Sections 107 and FRBP9018, as enumerated above, compel a finding that any order sealing confidential information at thisstage of the proceedings expire of its own terms upon the entry of an order for relief. Theinformation presently sought to be sealed will now have to be publicly disclosed in among otherplaces, the Debtors‟ Statement of Financial Affairs and Schedules of Assets and Liabilities. Conclusion 19. The U.S. Trustee does not oppose the relief sought pending the entry of an order forrelief in this case. However, the information sought to be sealed is information of a type that wouldnecessarily be disclosed promptly upon the entry of an order for relief. Accordingly, the U. S.Trustee submits that any orders entered expire of their own terms upon the entry of an order forrelief. 20. The United States Trustee leaves the moving parties to their burden on proof, andreserves all discovery rights. 8
  9. 9. WHEREFORE, the UST respectfully prays this Honorable Court to deny the Motions and forsuch other relief at law and in equity as this Honorable Court may deem proper. Respectfully submitted, Roberta A. DeAngelis UNITED STATES TRUSTEE REGION THREEDATED: May 29, 2012 BY: /s/ David L. Buchbinder, Esquire Trial Attorney Office of the United States Trustee J. Caleb Boggs Federal Building 844 King Street, Suite 2207 Wilmington, DE 19801 (302) 573-6491 (302) 573-6497 (Fax) 9
  10. 10. IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWAREIn re: : Chapter 11 :ALLIED SYSTEMS HOLDINGS, INC. : : : Bankruptcy No. 12-11564-CSS : Alleged Debtor, : : : ALLIED SYSTEMS, Ltd. : Bankruptcy No. 12-11565-CSS : Alleged Debtor, : CERTIFICATE OF SERVICE I certify that, on May 29, 2012, I caused to be served a copy of the United States Trustee’sOmnibus Objection to Petitioning Creditors’ Motion To File Redacted Versions Of ConfidentialPleadings And To File Certain Exhibits Thereto Under Seal; Motion To File Under SealUnredacted Version Of Alleged Debtor’s Response To Petitioning Creditors’ Motion PursuantTo Del. Bankr. L.R. 9006-1(E) For An Order Shortening Time; Alleged Debtor’s Motion To FileUnder Seal Unredacted Version Of The Motion Of Alleged Debtors To Transfer Venue Of ThisCase To The United States Bankruptcy Court For The Northern District Of Georgia, AtlantaDivision, Under Seal (D.E. 10, 31, 32, “Motions”) upon the following persons by First ClassUnited States Mail:Adam G. Landis Mark D. CollinsKerri K. Mumford Christopher M. SamisJeffry Drobish Richards, Layton & Finger, P.A.Landis Rath & Cobb LLP One Rodney Square919 Market Street, Ste. 1800 920 North King StreetWilmington, DE 19801 Wilmington, DE 19801Adam C. Harris Jeffrey W. KellyRobert J. Ward Ezra H. CohenVictoria A. Lepore Troutman Sanders LLPSchulte Roth & Zabel LLP 660 Peachtree Street, Ste. 5200919 Third Avenue Atlanta, GA 30308-2216New York, New York 10022 /s/ David L. Buchbinder, Esq.
  11. 11. Trial Attorney

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