S.E.C. v. Van Waeyenberghe

United States Court of Appeals,
Fifth Circuit.
No. 92-1080.
SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant,
v.
Gary VAN WAEYENBERGHE and Carl Leibowitz, Defendants,
and
Howard K. Schwartz, Defendant-Appellee.
May 17, 1993.
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. Schwartz1. 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"), seal ing 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
1
Without admitting or denying the allegations of the complaint, Schwartz consented to be
enjoined from further violations of the federal securities laws.
2
The Transcript of Proceedings is a written transcript of the parties' oral report on their
settlement conference and pretrial hearings. Although the transcript was not sealed by the
November order, it was transmitted to this Court with an indication that it was sealed. After
reviewing the transcript and determining that it "should be sealed in order to prevent the
inadvertent disclosure of the matters that were sealed pursuant to the order signed by the court
November 30, 1991," the district court entered an order sealing the transcript.
3
Our jurisdiction over the SEC's appeal from the February order requires some explanation.
The SEC filed its notice of appeal from the November order, and the transcript was sealed
thereafter. The SEC did not amend its original notice of appeal or file another notice, appealing
the February order. Nonetheless, the SEC in its brief on appeal, and at oral argument, stated that
it is appealing the February order.
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 beco me 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
Under Fed.R.App.P. 3(c), a notice of appeal "shall designate the judgment, order,
or part thereof appealed from." However, notices of appeal are liberally construed where
"the intent to appeal an unmentioned or mislabeled ruling is apparent and there is no
prejudice to the adverse party." C.A. May Marine Supply Co. v. Brunswick Corp., 649
F.2d 1049, 1056 (5th Cir.), cert. denied, 454 U.S. 1125, 102 S. Ct. 974, 71 L. Ed. 2d 112
(1981); see also Torres v. Oakland Scavenger Co., 487 U.S. 312, 316, 108 S. Ct. 2405,
2408, 101 L. Ed. 2d 285 (1988) (federal rules of procedure, including Appellate Rule 3(c),
should be liberally construed). Accordingly, we have held that "[f]ailure to properly
designate the order appealed from is not a jurisdictional defect, and may be cured by an
indication of intent in the briefs or otherwise." United States v. Rochester, 898 F.2d 971,
976 n. 1 (5th Cir.1990); see also Turnbull v. United States, 929 F.2d 173, 177 (5th
Cir.1991) (quoting Rochester ). In addition, where "claims or issues are inextricably
entwined, each may be reviewed even though not referred to in the notice of appeal."
C.A. May Marine Supply Co., 649 F.2d at 1056.
We have jurisdiction over the SEC's appeal from the February order because (1)
the SEC stated in its brief, and at oral argument, that it is appealing the February order;
(2) the issue of whether the transcript should be sealed is inextricably entwined with the
issue of whether the final order should be sealed because the transcript was sealed only to
protect the contents of the sealed final order; and (3) Schwartz is not prejudiced by our
exercise of jurisdiction, because he was informed that the SEC is appealing the February
order, and because the issues pertaining to the sealing of the transcript are identical to
those pertaining to the sealing of the final order.
4
While other circuits have held that there is a strong presumption in favor of the public's
common law right of access to judicial records, see, e.g., EEOC v. Erection Co., 900 F.2d 168,
170 (9th Cir.1990); Bank of America Nat'l Trust v. Hotel Rittenhouse, 800 F.2d 339, 344 (3d
Cir.1986), we have refused to assign a particular weight to the right. See Belo, 654 F.2d at 434
("[T]he presumption—however gauged—in favor of public access to judicial records—[is] one of
the interests to be weighed.").
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 1312-14 (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 set tlement 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,
5
Schwartz claims that the district court properly sealed the record because it believed that the
SEC was acting in bad faith. We are unconvinced by this argument because the district court
indicated that it thought the SEC was acting in bad faith merely because the SEC did not agree
with Schwartz that the settlement agreement should be sealed. Because the public has a right of
access to judicial records, the SEC was not acting in bad faith by insisting that the settlement
agreement should not be sealed.
169-70 (9th Cir.1990) (applying presumption to a consent decree t hat 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 appro val, 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
6
The district court stated: "The issue we are talking about is whether the public is better
served by [Schwartz] being forced to make a disclosure by an order of this court, as opposed to
there being a lawsuit pending in Fort Worth, Texas with him operating in Michigan." Transcript
at 22.
7
See Transcript at 14-15, 19. Although Schwartz agreed to disclose that he had been enjoined,
there is no provision in the final order or consent decree requiring Schwartz to disclose that he
been enjoined.
8
The district court stated:
Who in the world dealing with [Schwartz] would know that there's a suit
pending, had been a suit pending in Fort Worth, Texas? ... The public is going to
be best served if [Schwartz] is required himself to make a disclosure every time he
does or has the potential to engage in transactions that could affect the financial
wellbeing of people. They are going to be better protected by that than the
existence of a lawsuit in Fort Worth, Texas.
Transcript at 21.
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 t he federal securities laws to
disclose that fact: the disclosure requirements of the federal securities laws are not coextensive with
the public's right of access to judicial records. Because the district court failed to balance the public's
right of access to judicial records against the interests favoring nondisclosure, the district court
abused its discretion in sealing the transcript and final order.
III
Because the district court abused its discretion in sealing the final order and transcript, we
REVERSE the order of November 30, 1991, sealing the final order, and REVERSE the order of
9
In fact, the SEC had brought suit against Schwartz for failing to disclose an injunction against
general partners, in violation of the federal securities laws.
February 7, 1992, sealing the transcript, and REMAND for further proceedings.10
10
It is questionable whether there is a settlement agreement. Schwartz indicated at oral
argument, and in his brief on appeal, that his agreement to settle was contingent on the agreement
being sealed. At oral argument, the SEC, however, argued that the settlement agreement was not
contingent on being sealed. On remand, the district court should determine whether the parties
have, indeed, settled the case.