WARREN HILL, LLC v. SFR EQUITIES, LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

WARREN HILL, LLC. : CIVIL ACTION

:

v. :

:

SFR EQUITIES, LLC : NO. 18-1228

MEMORANDUM

Bartle, J. August 25, 2020

Chicago Public Media, Inc. (“Chicago Public Media”), a

non-profit media company which operates NPR media station WBEZ,

has moved to intervene in this action pursuant to Rule 24 of the

Federal Rules of Civil Procedure for the limited purpose of

obtaining copies of all judicial records which are currently

under seal. Learning of Chicago Public Media’s pending motion,

Vendor Assistance Program LLC (“VAP”), Bluestone Capital

Markets LLC (“BCM”), Bluestone Finance LLC (“BSF”) and Bryan

Hynes (“VAP intervenors”) also move to intervene but to oppose

the unsealing of the judicial records. Plaintiff Warren Hill,

LLC (“Warren Hill”) and defendant SFR Equities, Inc. (“SFR”)

support the motion of the VAP intervenors and oppose the motion

of Chicago Public Media.1

1. Warren Hill and SFR have in reality stood on the sidelines

in what is a dispute between Chicago Public Media and the VAP

intervenors.

Warren Hill sued SFR in this diversity action for

breach of contract and for an accounting under Illinois law.

Plaintiff’s claim arose out of the sale to SFR of its interest

in VAP and the failure of SFR to pay what was due pursuant to

what was titled the Membership Interest Purchase Agreement

(“MIPA”).

During the course of this action, many of the

documents, including deposition testimony, were filed under seal

pursuant to a Confidentiality Order. On December 3, 2019, this

court entered summary judgment in favor of Warren Hill in the

amount of $6,226,688.19. SFR thereafter filed a notice of

appeal, and the matter is now pending in the Court of Appeals.

SFR has not filed a bond or security to stay the judgment under

Rule 8(a)(1)(B) of the Federal Rules of Appellate Procedure.

Consequently, Warren Hill is proceeding with its efforts to

execute on the judgment. See also Warren Hill LLC v. Neptune

Investors LLC, et al., Civil Action No. 20-0452 (E.D. Pa.).

VAP, Warren Hill’s interest in which it sold to SFR,

is in an unusual business. As a result of the fact that the

state of Illinois cannot or does not pay its bills on time, the

state has established what is known as the Vendor Payment

Program (“VPP”). Under this program, it approved VAP as a

Qualified Purchaser to purchase or take an assignment of the

outstanding accounts receivable of vendors that provide the

state with goods and services. A Qualified Purchaser promptly

pays the vendors 90% of the face value of the accounts

receivable. The Qualified Purchaser makes its money when the

state at some later point pays to it directly or indirectly the

full value of the accounts receivable along with a substantial

interest penalty. The remaining 10% due the vendors is then

remitted.

The MIPA did not simply provide for a sum certain to

be paid to Warren Hill as a result of the sale of its interest

in VAP. In addition, the MIPA required payment to Warren Hill

of 50% of VAP’s net income for three ensuing years under a

complicated formula set forth in the document. The court’s

rulings in this action involved not only the interpretation of

the MIPA but also a review of the finances and financial

arrangements of VAP. The court needed to understand the

structure of VAP and its related entities and the interplay of

their complex operations.

SFR and the VAP intervenors are all closely

intertwined. SFR appoints one of the six managers of VAP.

Bryan Hynes is a founder of VAP and one of its managers. VAP

created BCM, another intervenor, as a vehicle allegedly to

comply with new federal risk retention regulations. In 2017,

VAP created BSF in Puerto Rico to conduct business there. It

has an operating agreement with BCM, VAP, BSF, and BCM which

have a series of service agreements among themselves. VAP has

also transferred various trust certificates to BCM. Finally,

significant sums of money have been transferred from SFR to some

of the VAP intervenors and vice versa.

The law in this circuit is well established that a

court may grant a motion for permissive intervention under

Rule 24(b) solely to allow the intervenor to challenge a

protective or confidentiality order so as to obtain access to

court documents under seal. The entity seeking intervention for

this limited purpose does not need to establish an independent

basis for subject matter jurisdiction. Pansy v. Borough of

Stroudsburg, 23 F.3d 772, 777-80 (3d Cir. 1994). Said motion is

timely even if it is filed after an action is settled. Id. We

see no reason why the same analysis should not also apply where

a third party seeks to prevent disclosure.

Chicago Public Media argues that it is entitled to the

sealed documents in this action under the common law right of

public access to judicial records — a right that antedates the

Constitution. It includes the right to inspect and copy such

records. In Re Cendant Corp., 260 F.3d 183, 192 (3d Cir. 2001);

Leucadia, Inc. v. Applied Extrusion Techs., Inc., 998 F.2d 157,

161 (3d Cir. 1993).

A judicial record is a document filed with the court

or “otherwise somehow incorporated or integrated into a district

court’s adjudicatory proceedings.” In Re Cendant, 260 F.3d at

192. A judicial record includes “pretrial motions of a

nondiscovery nature, whether preliminary or dispositive, and the

material filed in connection therewith.” Summary judgment

motions and the exhibits related thereto of course are judicial

records.2 Leucadia, Inc., 998 F.2d at 164.

The common law right of public access to judicial

records carries with it a strong presumption in its favor,

although the right of public access is not absolute. In re

Avandia Mktg., 924 F.3d at 672. The burden is on the opposing

party or parties “to overcome the presumption of access to show

that the interest in secrecy outweighs the presumption.”

Leucadia, Inc., 998 F.2d at 165; In re Avandia Mktg., 924 F.3d

at 672. Those seeking to overcome the presumption must “show

that the material is the kind of information that courts will

protect and that the disclosure will work a clearly defined and

serious injury to the party seeking closure.” Id. (internal

quotations omitted). While the existence of trade secrets and

confidential business information may be a basis to deny public

access, embarrassment to a party does not suffice. In re

Avandia Mktg., 924 F.3d at 679; Leucadia, Inc., 998 F.2d at 166.

2. Protection of discovery materials is subject to a different

analysis. See In Re Avandia Mktg., 924 F.3d 662, 670-72

(3d Cir. 2019). Documents of this nature are not involved here.

If the court rules in favor of those seeking to

maintain secrecy, it must articulate “the compelling,

countervailing interests to be protected,” “make specific

findings on the record concerning the effects of disclosure,”

and “provide an opportunity for interested third parties to be

heard.” In re Avandia Mktg., 924 F.3d at 678. Before deciding

that the presumption has been surmounted, the court must make a

document-by-document review. Id.

Chicago Public Media seeks access to documents

identified by docket entry numbers 38, 43, 44, 45, 46, 47, 52,

57, 66, 73, 74, 76, 78, 79, 80, 81, 83, and 84. These documents

have all been filed under seal pursuant to a Confidentiality

Stipulation between the parties and approved as an order by the

court. Under the order, “Confidential Information shall be

limited to information that the source reasonably and in good

faith believes is of a proprietary or commercially sensitive

nature, or should otherwise be subject to confidential

information.” (internal quotations omitted). The order further

provides that “[t]he court reserves the right to rescind, modify

or alter the terms of this Stipulation at any time upon the

motion of any party or upon its own motion.”

The documents sought by Chicago Public Media consist

of motions for summary judgment or for reconsideration, together

with supporting and opposing briefs as well as related exhibits.

All of the court’s orders and memoranda disposing of the motions

are available to the public on the docket. Thus some of what is

contained in the sealed documents has already been unsealed.

The VAP intervenors, as entities or persons who have

an interest in SFR, provided discovery in this litigation. They

maintain at least some of the documents supplied, as well as

deposition testimony, contain “Client Marketing Information and

CRM [Customer Resource Management] . . . Information Concerning

VAP Members or Employee Bonus and Compensation Structure,” their

“Rationale for Their Business Restructuring and Compliance with

Program Terms and Risk Retention Laws,” and their “Interactions

and Agreements with their Lenders and Bankers.” The VAP

intervenors argue that this information is “highly confidential,

competitively sensitive, and amount[s] to business secrets that

are protected from disclosure.” They further contend that there

is “no countervailing public interest.” Finally, they assert

that they only provided the information in issue because of

reliance on the Confidentiality Stipulation.

At the request of the VAP intervenors, and with the

concurrence of all the parties, the court directed SFR to

provide to the VAP intervenors for review copies of all

documents under seal which they supplied as well as copies of

deposition transcripts of their employees under seal. After

review, they submitted a supplemental brief detailing their

opposition to the unsealing of each of these records.

The VAP intervenors rely heavily on our Court of

Appeals decision in Leap Sys., Inc. v. Moneytrax, Inc., 638 F.3d

216 (3d Cir. 2011) to prevent disclosure. This case is

inapposite. There, the parties were involved in a contentious

business dispute involving misappropriation of proprietary and

confidential information and breach of contract. They

ultimately entered into a settlement agreement which counsel

placed on the record in the courtroom while the district judge

presided. The judge placed the settlement agreement under seal.

Thereafter, a third party moved to intervene and unseal. The

Court of Appeals affirmed the district court’s refusal to do so.

It emphasized that the judge had assured the parties of

confidentiality and had specifically found that the parties

would not have entered into the settlement agreement absent the

judge’s assurance in this regard. Under these circumstances,

the Court of Appeals held that this assurance outweighed the

common law right of access. The Court added that the case did

not involve “matters of legitimate public concern” as the

parties were private entities whose dispute had “no impact on

the safety or health of the community.” Id. at 222.

In this case, the court did not assure any party of

confidentiality. On the contrary, the parties and non-parties

were on notice from the outset that the court reserved “the

right to rescind, modify, or alter the terms of the

[Confidentiality] Stipulation any time upon the motion of any

party or upon its own motion.” In addition, this case is imbued

with public interest. While it is true that VAP enters into

private agreements with the vendors of the state of Illinois, it

does so under a statutory scheme for the payment of the state’s

debts and under the watchful eye of the state and its residents

as a result of the various public filing requirements. This

contrasts sharply with the purely private dispute involved in

Leap.

The records in issue do reveal much about the

governance, structure, contractual arrangements, finances, and

dealings with clients, lenders, and banks of the VAP

intervenors. While it is understandable that they would want to

keep confidential as much of this information as possible, the

standard to maintain confidentiality is stringent.

After making a document-by-document review, the court

finds that the VAP intervenors have not overcome the presumption

of public accessibility to judicial records and have not shown

that “disclosure will work a clearly defined and serious injury”

to them. In re Avandia Mktg., 924 F.3d at 672. None of the

information rises to the level of highly sensitive business

secrets entitled to protection.

The documents at issue explain the workings of the VPP

established by the state of Illinois as well as the workings of

VAP as a Qualified Purchaser which buys the state’s accounts

receivable and later receives vast sums of money including

interest penalties from the state. VAP is owned in part by SFR

and is clearly intertwined with the other VAP intervenors as it

conducts its business with the state. Significant money and

things of value have moved from some of these entities to other

of these entities. The sealed documents were necessary for the

court to be able to understand and determine what SFR owed to

Warren Hill, that is, to determine the amount that constituted

50% of VAP’s net income for the three-year period under the

MIPA. The public clearly has a valid interest in the records at

issue. The VAP intervenors’ interest in secrecy is clearly

subordinate.

Accordingly, the motion of Chicago Public Media to

intervene and to obtain access to the judicial records in issue

will be granted. The motion of the VAP intervenors to intervene

will be granted but the motion to the extent that it seeks to

block disclosure of judicial records will be denied. The Clerk

will be directed to unseal the records at issue.