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Sjostrom v. Kraatz

United States District Court, N.D. California

July 21, 2016

JOEL SJOSTROM, et al., Plaintiffs
HARRY R KRAATZ, et al., Defendants.


          Donna M. Ryu United States Magistrate Judge

         On March 21, 2016, Plaintiffs Joel Sjostrom and Aegis Retail One, LLC (“Plaintiffs”) filed a complaint alleging claims for fraud, breach of fiduciary duty, intentional interference with prospective economic relations, violation of federal securities law, violations of the Racketeering and Corrupt Organizations Act, and unfair competition against Defendants Harry Kraatz and HKSB, LLC. Complaint [Docket No. 1]. On June 21, 2016, Plaintiffs filed a motion to seal the complaint in its entirety. Plaintiffs assert that the parties have reached a full settlement, and that upon full review of the facts, Plaintiffs now believe that they do not have a sufficient basis to litigate the case. Plaintiffs therefore seek to seal the complaint because the allegations made therein could harm Kraatz’s reputation. Amended Motion to Seal (“Mot.”) [Docket No. 10]. The court has determined that this matter is appropriate for resolution without oral argument pursuant to Civil Local Rule 7-1(b). The motion hearing set for July 28, 2016 is hereby vacated.


         The public has a right of access to judicial proceedings and court records are normally open to the public. Nixon v. Warner Communications, 435 U.S. 589, 597 (1978) (“It is clear that the courts of this country recognize a general right to inspect and copy public records and documents, including judicial records and documents” (citations omitted)). The Ninth Circuit “start[s] with a strong presumption in favor of access to court records.” Foltz v. State Farm Mut.Auto. Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003). Two standards govern motions to seal court documents. A “compelling reasons” standard applies to dispositive motions, such as motions for summary judgment. A “good cause” standard applies to non-dispositive motions, such as discovery motions. Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1179 (9th Cir. 2006). Motions that are technically non-dispositive may still require the party to meet the “compelling reasons” standard when the motion is more than tangentially related to the merits of the case. Ctr. for Auto Safety v. Chrysler Grp., LLC, 809 F.3d 1092, 1101 (9th Cir. 2016).

         To meet the “good cause standard, ” “a ‘particularized showing’ under the . . . standard of Rule 26(c) will ‘suffice.’” Kamakana, 447 F.3d at 1180 (quoting Foltz, 331 F.3d at 1138). Compelling reasons generally exist when the “‘files might have become a vehicle for improper purposes, ’ such as the use of records to gratify private spite, promote public scandal, circulate libelous statements, or release trade secrets.” Id. (quoting Nixon, 435 U.S. at 598), or where court files may serve “as sources of business information that might harm a litigant’s competitive standing.” Nixon, 435 U.S at 598-99.

         Under the local rules in this district, sealing orders “may issue only upon a request that establishes that the [information] is privileged or protectable as trade secret or otherwise entitled to protection under the law.” Civil L.R. 79-5(b). All requests to file under seal must be “narrowly tailored, ” such that only sealable information is sought to be redacted from public access. Id.


         Plaintiffs seek to seal the complaint in its entirety. Because the complaint is more than tangentially related to the merits of the case, the compelling reasons standard governs the sealing request. Schwartz v. Cook, No. 5:15-CV-03347-BLF, 2016 WL 1301186, at *1 (N.D. Cal. Apr. 4, 2016) (compelling reasons standard governed motion to seal portions of the complaint); In re NVIDIA Corp. Derivative Litig., No. 06-cv-06110-SBA, 2008 WL 1859067, at *3 (N.D. Cal. Apr. 23, 2008) (“While a complaint is not, per se, the actual pleading by which a suit may be disposed of, it is the root, the foundation, the basis by which a suit arises and must be disposed of.”).

         Plaintiffs argue that the complaint should be sealed because the fraud-related allegations in the complaint could harm the reputation and livelihood of Kraatz, a re-organization specialist who assists struggling companies and whose business involves reviewing the confidential information of clients during restructuring. Mot. at 4. Plaintiffs contend that allowing the complaint to remain public “would not only be an embarrassment to Mr. Kraatz but could be catastrophic as current and potential clients will distance themselves from Mr. Kraatz out of caution, if not a belief that Mr. Kraatz has ulterior motives.” Id. at 4-5. Similarly, Plaintiff Sjostrom’s declaration in support of the motion to seal states: “Due to the nature of the claims alleged in the Complaint, I believe harm could occur that may substantially injure defendant Harry Kraatz’s reputation that assists struggling businesses to restructure and attract new investors.” Declaration of Joel Sjostrom [Docket No. 10-1] at ¶ 5.

         However the Ninth Circuit has made clear that “[t]he mere fact that the production of records may lead to a litigant’s embarrassment, incrimination, or exposure to further litigation will not, without more, compel the court to seal its records.” Kamakana, 447 F.3d at 1179. When sealing documents under the compelling reason standard, a “district court must base its decision on a compelling reason and articulate the factual basis for its ruling, without relying on hypothesis or conjecture.” Hagestad v. Tragesser, 49 F.3d 1430, 1434 (9th Cir. 1995). In the absence of specifically articulated reasons, “meaningful appellate review is impossible.” Id. at 1435. Although Plaintiffs nakedly assert that the “[c]omplaint has inadvertently become a vehicle for improper purposes that could promote a public scandal or circulate libelous statements, ” they do not provide any factual basis supporting this claim. Mot. at 5.

         In short, Plaintiffs have failed to provide a compelling reason to seal the complaint sufficient to overcome the public’s interest in disclosure. Furthermore, Plaintiffs’ request to seal the entire complaint is not narrowly tailored and fails to comply with Civil Local Rule 79-5(b). Therefore, Plaintiffs’ motion to seal the complaint is denied.


         In their motion, Plaintiffs also state that “the parties have come to a settlement agreement and that Plaintiffs have dismissed the Complaint.” Mot. at 4. However, no notice of settlement or dismissal has been filed in this case. Therefore, Plaintiffs ...

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