Free Speech

No Sealing of Business Details "Directly Relevant to the Heart of [a Civil] Case"

"If the Court sealed the disputed materials, it would essentially conceal the very mechanism that REA used to perpetuate the scheme, leaving the public with little more than the judgment itself to establish the existence of the scheme."

|The Volokh Conspiracy |

From Magistrate Judge Steven C. Mannion's decision in Shanus v. R.L. Americana, 2018 WL 9440501 (D.N.J.), decided a year ago but just posted on Westlaw:

Before the Court is Defendants Robert Lifson and Robert Edward Auctions' (collectively "REA") motion to seal and redact portions of the trial transcript and exhibits. REA argues that they have a strong interest in redacting and sealing portions of the transcript because they reference confidential business dealings, contracts, and settlements relating to customers who were not parties to this action.

After a five day trial, the jury found that REA, with the assistance of nonparties Peter Nash and his business, Cooperstown Monument Company ("Cooperstown"), fraudulently manipulated the market through a deceptive bidding and purchase scheme. Plaintiff Corey R. Shanus contends that this motion is nothing more than an attempt to conceal evidence of REA's fraud from the public….

The presentation of materials to the Court creates a presumption that such materials, regardless of a party's discovery designation, are part of the public record and subject to public access. Because all materials and judicial proceedings are matters of public record, the Court typically should not seal such records. However, the right of public access is not absolute. "Every court has supervisory power over its own records and files, and courts have denied access where files might become a vehicle for improper purpose." …

Prior to trial, Judge McNulty found that the disputed transcript sections provide the foundational information necessary to understand REA's scheme. The public has a right to understand why and how a court reached a judgment. If the Court were to seal these documents, it would effectively obscure the reasoning behind the Court's judgment.

For example, REA wishes to seal sections of the April 30th and May 1st transcripts that describe Mr. Lifson's relationship with Mr. Nash and outline their scheme. The disputed transcripts explain how Mr. Nash consigned items that he owned for sale in REA auctions. After placing his items in the auctions, Mr. Nash bid on some of those very same items as Cooperstown, an entity that he completely controlled.

Mr. Nash then extended credit to Cooperstown for the cost of the successful bids, therefore preventing any money from actually changing hands between Mr. Nash and Cooperstown. Essentially, Mr. Nash would loan Cooperstown, an entity under his control, money to pay himself for Cooperstown's purchases of his own memorabilia.

Mr. Lifson, as the auction representative, would normally receive a buyer's commission and fees from items sold in REA auctions. However, Mr. Nash would not pay the full fees, accruing debt with REA. Instead, Mr. Lifson had an agreement with Mr. Nash that the items Cooperstown purchased would be held as collateral for Mr. Nash's debt, but it is unclear whether Mr. Lifson ever intended on collecting this debt.

Mr. Lifson would then report these sales on his website, but REA never actually removed these items from their inventory, until offering them for sale at some point in the future. Because successful sales potentially increase the value of items, Mr. Lifson and Mr. Nash's scheme would artificially inflate the prices of items that they intended to sell in future auctions.

For the above reasons, the materials that REA seeks to seal are directly relevant to the heart of this case, meaning that the basis for the judgment rests upon the disputed transcripts and exhibits. If the Court sealed the disputed materials, it would essentially conceal the very mechanism that REA used to perpetuate the scheme, leaving the public with little more than the judgment itself to establish the existence of the scheme. Consequently, the Court finds that the public interest in disclosure outweighs any private interest to seal….