Unsealed! Judges often can't say no when reporters show some interest
Litigation against some major exchanges alleges they allowed HFT firms to trade faster and ahead of ordinary investors. Don't we deserve to know all the details?
Essential to the rule of law is the public performance of the judicial function. The public resolution of court cases and controversies affords accountability, fosters public confidence, and provides notice of the legal consequences of behaviors and choices. On occasion, however, there are good reasons for courts to keep parts of some proceedings confidential. Courts will keep confidential classified information, ongoing investigations, trade secrets, and the identities of minors, for example.
The public in general and news media in particular have a qualified right of access to court proceedings and records. This right is rooted in the common law. The First Amendment also confers on the public a qualified right of access.
From “Sealing Court Records and Proceedings: A Pocket Guide,” Robert Timothy Reagan, Federal Judicial Center, 2010
In May 2020, I became aware of John Cheffers’ research highlighting the latest on a series of lawsuits related to the gargantuan Kraft Heinz impairment and SEC investigation of 3G, the private equity firm that, with Buffett and Berkshire Hathaway, merged Kraft and Heinz in 2015. Much of the complaint that was initially filed had been redacted at the request of KHC.
What typically happens is that judges go along with initial redaction and confidentiality requests by the parties unless someone objects. Often an opposing party in the litigation will not complain because they are allowed to review unredacted information and don’t care if the public sees it or not.
The media and other observers of the proceedings have, perhaps, gotten bored or moved on from prolonged court proceedings that don’t immediately result in a trial.
Everyone involved conducts justice under covers because it’s more expedient.
However, I wasn’t tired of the Kraft Heinz story and decided to submit a challenge to the court on the level of redactions. My request as a member of the press was docketed and, as a result, KHC agreed to substantially narrow their scope of requested redactions.
The prize for my effort was a lot more information, resulting in this story. There was also more information available for other investor litigants, in particular in a class action lawsuit still pending in Illinois.
Sometimes all it takes is for the press to ask. You don’t always have to sue.
My success emboldened me. I was successful after just writing a good letter.
And now I’ve written this one regarding the City of Providence, Rhode Island v. BATS Global Markets, Inc. case, which is important on the issues of high frequency trading, payment for order flow, and the role of the exchanges. I wrote a lot about those issues while at MarketWatch (see Appendix A in the letter for the list of links), and I’d like to write more.
However, as I wrote to the judge, it’s hard for reporters to follow a case or convince an editor to spend time on it when all of the information needed to follow the arguments is hidden from view.
There are other instances of this — confidential filings in the Elizabeth Holmes and Ghislaine Maxwell criminal trials come to mind — and I filed another request to a judge in SDNY on another criminal case this same day.
By the way, Southern District of New York electronic court filing rules prohibit sealing in criminal cases.[1] And sealing of judicial records is not considered appropriate if it is done merely to protect parties from embarrassment.[2] When a criminal case is complete all documents, including exhibits, should be available to the public via the docket.
[1] See Rule 6.20 of SDNY Electronic Case Rules and Instructions, “Electronic filing under seal is not permitted in criminal cases.”
[2] Siedle, 147 F.3d at 10; Kamakana v. City and County of Honolulu, 447 F.3d 1172, 1178–79 (9th Cir. 2006).
Here’s my letter on the City of Providence, Rhode Island v. BATS Global Markets, Inc. case. I encourage other reporters to make the effort. It’s very gratifying to see your letter in the docket and then to see the documents made available to the public.
**********************************************************************************************************
Hon. Jesse M. Furman
United States District Judge
Thurgood Marshall United States Courthouse
40 Foley Square
New York, NY 10007
By email and registered mail
December 21, 2021
Case 1:14-cv-02811-JMF
In re City of Providence, Rhode Island v. BATS Global Markets, Inc.
Your Honor:
I have been closely following and reporting on the issues which are the subject of this case for the last seven years.[1] There are key documents/exhibits that remain sealed in the current case docket. These exhibits are important for the public and the press to be able to follow the arguments of the case and its status, and for me to continue ongoing reporting on this case and its eventual aftermath.
On November 23, Defendants wrote (ECF No. 784) in response to Plaintiffs’ Motion to Unseal certain documents, filed November 19, 2021 (ECF Nos. 776, 777, and 779, the “Motion”) that “Plaintiffs’ discussion of ‘press interest’ is a red herring. There has been no recent press interest in this case.”
That statement is untrue. It is not unusual when a case takes a stop-and-start and winding road to trial, or eventual settlement, the press temporarily has to move on. The Plaintiffs faced a dismissal in 2015 when much of the reporting occurred and then appealed and prevailed, essentially reviving the case in December 2017.
It’s especially challenging for the press to keep following a case, and make the case to their editors to keep writing about it, when key documents in the case — documents and exhibits that are important for understanding plaintiffs’ and defendants’ arguments and objections — are sealed, put out of the reach of the press.
I last wrote about the case in May 2018, after the Second Circuit denied the defendants’ petition for a panel rehearing on March 13, 2018 and the defendants filed a petition for a writ of certiorari to the United State Supreme Court. After the Second Circuit denied the defendants petition for a panel rehearing on March 13, 2018, defendants filed a petition for a writ of certiorari to the United State Supreme Court. That petition was denied by the Court on October 9, 2018. Following remand, defendants filed a new motion to dismiss, which the Southern District of New York denied on May 28, 2019, reasoning that Plaintiffs had successfully alleged standing, reliance, scienter, and loss causation.
And, so, here we are today. This journalist is not shy. I am petitioning to make all documents available to the public, on behalf of all of the journalists who were writing about this case. There is real media interest in this case relating to documents currently filed under seal and the briefing sub judice.
The Court now knows about this press interest and coverage of the case. I am writing to ask you to remove the temporary Confidential Treatment for documents/exhibits that provide ongoing details and discussions regarding:
1) Motion for Summary Judgment on grounds of preclusion by the defendants, originally filed as ECF No. 600, and
2) Motion for Summary Judgment on Grounds of Lack of Article III Standing by defendants, originally filed as ECF No. 613.
Records may be sealed for a temporary purpose, but courts should follow procedures that ensure records become unsealed when they can be.[2] The Court has repeatedly indicated each time a seal has been requested that it is only “granted temporarily.” See, e.g., ECF Nos. 598, 620, 636-637, 741-744 (“The Court will assess whether to keep the materials at issue sealed or redacted when deciding the underlying motion”).
Specifically, ECF Nos. 609; 611; 611-1 to 611-27; 638; 660; 660-1 to 660-209; 669; 671; 671-1 to 671-279; 724; 726; 730-1; 730-2; 730-15; 731; 731-1 to 731-2; 740; 740-1 to 740-5 remain under seal despite the fact that the initial documents in each series of motions and responses, 600 and 613, were available for public view.
The public in general and news media in particular have a qualified right of access to court proceedings and records. This right is rooted in the common law.[3] The First Amendment also confers on the public a qualified right of access. Some courts of appeals have held that the public’s First Amendment right of access to court proceedings includes both criminal and civil cases.[4]
I am an independent journalist who publishes original analysis of the most widely-held and widely-shorted public companies in the world in a newsletter called The Dig. I’ve been an investigative reporter and feature writer for publications including Dow Jones MarketWatch, Forbes, American Banker, Financial Times, and the Chicago Booth Review since 2006. At MarketWatch I was a full-time reporter who monitored and reported on public company accounting, fraud and financial investigations, and the often questionable financial reporting practices of pre-IPO companies until November 2019 when I began publishing The Dig.
Before that I spent more than 20 years in public accounting and consulting, including for KPMG/BearingPoint in the U.S. and Latin America, and at PwC. I am also an adjunct professor of international business in the MBA program at American University’s Kogod School of Business and an adjunct professor in the graduate accounting program at Ohio State University.
Members of the news media and the public must be afforded an opportunity to be heard on motions to seal. Courts routinely permit non-parties to intervene for the purposes of challenging motions to seal.[5]
Given that court files are now available for inspection on the Internet, federal rules of practice and procedure provide that certain identifiers be redacted in court filings. It has not been fully documented for the public record that any information in these documents has been unequivocally established to be confidential information worthy of exception to the public access default such as trade secrets; sensitive proprietary information; sensitive financial, business, or personnel information; sensitive personal information such as medical records; and personally identifying information such as social security numbers, financial account numbers, and the names of minor children.
The court, of course, has the obligation and the discretion to weigh the need for secrecy against the public’s right of access but there should be a public record of what is sealed and why, consistent with the reason for sealing.[6] Sealing should be no more extensive than necessary. Courts should seal only the portions of the record that require sealing.[7]
An entire case file should not be sealed to protect the secrecy of some documents. An entire filing should not be sealed to protect the secrecy of an exhibit. Courts should be skeptical of arguments that following proper procedures is too burdensome.[8] If necessary, redacted versions should be filed publicly in place of unilateral decisions to seal documents that only serve as a convenience to the parties.
The record of the case should include specific reasons for sealing and specific reasons for not employing more limited forms of secrecy, such as redacting a document instead of sealing the whole document.[9] Clerks’ offices should not agree to seal a record unless directed to by a statute, rule, or court order.[10] Also, sealing requires more than an agreement among the parties.[11] Court records should be sealed to keep confidential only what must be kept secret, temporarily or permanently as the situation requires. Sealing of judicial records is not considered appropriate if it is done merely to protect parties from embarrassment.[12]
These exhibits have not been proven to be Highly Sensitive Documents, as defined by Standing Order 21-MC-0006, subject to approval by a judge. That is, there is no evidence they (1) contain classified information or information that could harm national security; or (2) their disclosure could reasonably be expected to cause exceptionally grave damage or injury to any person, entity or institution.
Given the extraordinary ongoing public interest in the case and my right as a member of the press to report on it, I respectfully ask the Court to order the attorneys in this case to make the exhibits noted previously — ECF Nos. 609; 611; 611-1 to 611-27; 638; 660; 660-1 to 660-209; 669; 671; 671-1 to 671-279; 724; 726; 730-1; 730-2; 730-15; 731; 731-1 to 731-2; 740; 740-1 to 740-5 — available to the public and the press.
Sincerely,
Francine McKenna
Founder and Editor, The Dig, a newsletter
cc: Ruby J. Krajick, Clerk of Court, by email and registered mail
John Gencarello, Chief Deputy Clerk, Operations, by email and registered mail
Steven M Jodlowski, Robbins Geller Rudman & Dowd LLP , for the City of Providence, United Association National Pension Fund, and Boston Retirement System, by email
Joseph F. Rice, Motley Rice LLC , for Employees' Retirement System of the Government of the Virgin Islands, by email
Francis Paul McConville, Labaton & Sucharow LLP, for American European Insurance Company and Harel Insurance Co, Ltd., by email
Victor E. Stewart, Lovell Stewart Halebian Jacobson LLP, for James J. Flynn and Dominic A. Morelli, by email
Douglas W Henkin, Dentons US LLP, for the New York Stock Exchange, L.L.C. , NYSE Arca, Inc. and the Chicago Stock Exchange, by email
James Alwin Murphy, Murphy & McGonigle, P.C., for Direct Edge ECN, L.L.C. and Bats Global Markets, Inc., by email
Douglas Randall Cox, Gibson, Dunn & Crutcher, LLP, for The Nasdaq Stock Market L.L.C. and Nasdaq OMX BX, Inc., by email
Exhibit A - Links to previous reporting by Francine McKenna related to this case
‘Flash boys’ exchange IEX hits back at Nasdaq lawsuit, MarketWatch, May 30, 2018
What investors can expect when IEX launches on Friday, MarketWatch, August 18, 2016.
IEX CEO Katsuyama stands firm on exchange’s fee-only model, MarketWatch, June 21, 2016.
Justice Department investigating Citadel, KCG for pricing to retail investors, MarketWatch, May 10, 2016.
Why Citadel opposes IEX’s stock exchange application, MarketWatch, March 10, 2016
Whistleblower award for NYSE fine goes to HFT critic, MarketWatch, March 1, 2016.
CFTC chief outlines proposals to fight market disruptions, MarketWatch, October 21, 2015.
SEC’s hedge fund reviews show advisors keeping trades for themselves, MarketWatch, October 16, 2015.
Takeover of Treasury market by high-speed firms catches regulators by surprise, MarketWatch, September 24, 2015.
New rules coming from CFTC to protect market from ‘Flash Boys’, MarketWatch, September 11, 2015.
Here’s the advantage high-frequency trading firms have over everyone else, MarketWatch, August 13, 2015.
SEC’s panel still at a loss over how to fix ‘broken market’, MarketWatch, June 30, 2015.
[1] See in Exhibit A for links to my reporting on the issues that are the subject of this case.
[2] See United States v. Antar, 38 F.3d 1348, 1362 (3d Cir. 1994) (“Under the First Amendment, once an overriding interest initially necessitating closure has passed, the restrictions must be lifted.”); Phoenix Newspapers, Inc. v. U.S. Dist. Court, 156 F.3d 940, 948 (9th Cir. 1998) (“consistent with history, case law requires release of transcripts when the competing interests precipitating hearing closure are no longer viable”); United States v. Valenti, 987 F.2d 708, 714 (11th Cir. 1993).
[3] Nixon v. Warner Communications, Inc., 435 U.S. 589, 596–97 (1978).
[4] E.g., Lugosch v. Pyramid Co., 435 F.3d 110, 121 (2d Cir. 2006) Publicker Indus., Inc. v. Cohen, 733 F.2d 1059, 1061 (3d Cir. 1984); Rushford v. New Yorker Magazine, Inc., 846 F.2d 249, 253 (4th Cir. 1988).
[5] Washington Post, 935 F.2d at 289, 292; In re Globe Newspaper Co., 729 F.2d 47, 56 (1st Cir. 1984); United States v. Aref, 533 F.3d 72, 81 (2d Cir. 2008); United States v. Raffoul, 826 F.2d 218, 221–22 (3d Cir. 1987); In re Knight Publ’g Co., 743 F.2d 231, 234 (4th Cir. 1984); Ford v. City of Huntsville, 242 F.3d 235, 241 (5th Cir. 2001); In re Knoxville NewsSentinel Co., 723 F.2d 470, 475–76 (6th Cir. 1983); In re Associated Press, 162 F.3d 503, 507 (7th Cir. 1998); Phoenix Newspapers, Inc. v. U.S. Dist. Court, 156 F.3d 940, 949 (9th Cir. 1998); In re Tribune Co., 784 F.2d 1518, 1521 (11th Cir. 1986).
[6] Washington Post, 935 F.2d at 289; United States v. Haller, 837 F.2d 84, 87 (2d Cir. 1988) (“the fact that a sealing order [has] been entered must be docketed”); In re Associated Press, 162 F.3d at 510 (“Sealing of the entire explanation would indeed be an extraordinary step for a district court to take, given the heavy burden it would place on the Press . . . .”); In re Search Warrant, 855 F.2d 569, 575 (8th Cir. 1988) (“The fact that a closure or sealing order has been entered must itself be noted on the court’s docket, absent extraordinary circumstances.”); cf. In re Washington Post Co., 807 F.2d 383, 391 (4th Cir. 1986) (“if the court concludes that a denial of public access is warranted, the court may file its statement of the reasons for its decision under seal”); In re Copley Press, Inc., 518 F.3d 1022, 1028 (9th Cir. 2008) (the public does not have a First Amendment right to documents explaining why something should be sealed if those documents contain secrets that the sealing is designed to protect).
[7] SEC v. TheStreet.com, 273 F.3d 222, 231 (2d Cir. 2001); United States v. Criden, 675 F.2d 550, 554 (3d Cir. 1982); Media Gen. Operations, Inc. v. Buchanan, 417 F.3d 424, 429 (4th Cir. 2005); United States v. Chagra, 701 F.2d 354, 365 (5th Cir. 1983); Doe v. Blue Cross & Blue Shield United of Wisconsin, 112 F.3d 869, 872 (7th Cir. 1997); United States v. Brooklier, 685 F.2d 1162, 1172 (9th Cir. 1982); Sibley v. Sprint Nextel Corp., 254 F.R.D. 662, 667 (D. Kan. 2008); United States v. Polsen, 568 F. Supp. 2d 885, 928 (S.D. Ohio 2008); see D. Alaska Civ. R. 5.4(a)(3); N.D. Cal. Civ. R. 79-5(a); N.D. Cal. Crim. R. 55-1; E.D. Mich. Civ. R. 5.3(c)(2); N.D. & S.D. Miss. Civ. R. 79(b); W.D. Wash. Civ. R. 5(g)(3).
[8] See Banks v. Office of the Senate Sergeant-at-Arms, 233 F.R.D. 1, 10–11 (D.D.C. 2005).
[9] EEOC v. Nat’l Children’s Ctr., Inc., 98 F.3d 1406, 1410 (D.C. Cir. 1996); In re Globe Newspaper Co., 729 F.2d 47, 56 (1st Cir. 1984); In re Herald Co., 734 F.2d at 100; In re Knight Publ’g Co., 743 F.2d 231, 234– 35 (4th Cir. 1984); In re Washington Post Co., 807 F.2d at 391; In re Associated Press, 162 F.3d at 510, 513 (“district courts should articulate on the record the reason for any order that inhibits the flow of information between the courts and the public.”); In re Search Warrant, 855 F.2d at 574.
[10] See, e.g., United States v. Amodeo, 44 F.3d 141, 147 (2d Cir. 1995) (reviewing sealed reports by a special master, the court observed, “While we think that it is proper for a district court, after weighing competing interests, to edit and redact a judicial document in order to allow access to appropriate portions of the document, we consider it improper for the district court to delegate its authority to do so.”); Media Gen. Operations, Inc. v. Buchanan, 417 F.3d 424, 429 (4th Cir. 2005) (“The decision to seal documents must be made after independent review by a judicial officer, and supported by findings and conclusions specific enough for appellate review.”) (quotation marks omitted).
[11] See Washington Post v. Robinson, 935 F.2d 282, 289 (D.C. Cir. 1991); In re Herald Co., 734 F.2d 93, 102 (2d Cir. 1984); United States v. Criden, 675 F.2d 550, 554 (3d Cir. 1982); In re Washington Post Co., 807 F.2d 383, 390 (4th Cir. 1986); In re Knoxville News-Sentinel Co., 723 F.2d 470, 475 (6th Cir. 1983).
[12] Siedle, 147 F.3d at 10; Kamakana v. City and County of Honolulu, 447 F.3d 1172, 1178–79 (9th Cir. 2006).
© Francine McKenna, The Digging Company LLC, 2021
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