800 F.

2d 339
55 USLW 2171, 13 Media L. Rep. 1450

BANK OF AMERICA NATIONAL TRUST AND SAVINGS

ASSOCIATION, a
national banking association
v.
HOTEL RITTENHOUSE ASSOCIATES, a Pennsylvania
limited
partnership, Jack L. Wolgin, Jack L. Wolgin Associates,
Inc., a Pennsylvania corporation, both general partners of
Hotel Rittenhouse Associates, and Jack L. Wolgin and Muriel
Wolgin, husband and wife
v.
NILSI, N.V., Abohar Investments, N.V., Khalid Y. Al-Marzook,
Jassim Y. Al- Marzook, and Faisal Y. Al-Marzook.
Appeal of FAB III CONCRETE CORPORATION.
FAB III CONCRETE CORPORATION, Appellant,
v.
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION.
Nos. 85-1753, 85-1754.

United States Court of Appeals,

Third Circuit.
Argued June 4, 1986.
Decided Sept. 8, 1986.

Leonard J. Bucki (argued), Wolf, Block, Schorr and Solis-Cohen,

Philadelphia, Pa., for appellant, Fab III Concrete.
Harold E. Kohn (argued), Joseph C. Kohn, Kohn, Savett, Marion & Graf,
Philadelphia, Pa., for appellees, Hotel Rittenhouse Associates et al. and
Bank of America Nat. Trust and Sav. Ass'n.

Before ALDISERT, Chief Judge, GARTH and SLOVITER, Circuit

Judges.
OPINION OF THE COURT
SLOVITER, Circuit Judge.

In this appeal, we are faced with an issue that this court has confronted with
increasing frequency in recent years: under what circumstances documents filed
in the district court may be sealed from public access.

I.
Facts and Procedural History
2

The dispute that forms the basis for this case arose out of the construction of
the Hotel Rittenhouse in Philadelphia, which is not yet completed. The factual
record before us is spare. There appears to be little dispute about the relevant
historical facts, which we present briefly from the appellant's perspective.

In 1981, the Bank of America (the Bank), contracted with Hotel Rittenhouse
Associates (HRA) and other developers to finance the construction of the hotel.
FAB III, the appellant here, was the concrete contractor on the project.

In June 1983, the Bank filed suit against HRA, its partners and some involved
individuals (referred to collectively as HRA) in the United States District Court
for the Eastern District of Pennsylvania to foreclose on the Hotel Rittenhouse
property and to collect on a loan. HRA counterclaimed on numerous state and
federal law grounds.1

In April 1984, FAB III filed suit in federal court against the Bank, but not
against HRA, seeking over $800,000 on the basis of an alleged assurance by the
Bank of direct payment for FAB III's HRA work. The Bank moved to dismiss
on the ground that HRA was an indispensable party and that joinder of HRA
would destroy diversity of citizenship. Apparently, this motion has never been
decided.

The Bank-HRA action proceeded to trial in January 1985. Before the case was
sent to the jury, the parties reached a settlement and the jury was discharged.
At the parties' request, the settlement agreement was filed under seal in the
district court. Prior to this time, all proceedings in the litigation had been open

to the public.
7

Shortly thereafter, there was a disagreement between the Bank and HRA about
the settlement. On March 11, 1985, HRA filed a "Motion to Enforce Settlement
Agreement." The Bank responded the next day with a similar motion. A series
of documents regarding this dispute was filed under seal in the district court.
According to the appellees' brief, release of the documents filed to enforce the
settlement would reveal the contents of the settlement agreement.

In March and April 1985, the district court rendered a series of orders in the
Bank-HRA litigation which apparently were pursuant to the motions asking it
to enforce the settlement agreement. On March 25, the court gave judgment for
the Bank against HRA for over 38 million dollars on one count of its complaint
and dismissed all other counts of the Bank's claim and all of HRA's
counterclaims. This judgment also ordered the Hotel Rittenhouse property sold
at a Marshal's sale and set some of the terms of the sale. App. at 71a-73a. On
April 12, the court filed another order setting the terms of payment for the
Marshal's sale. The district court docket sheet also shows an entry on April 26
that "Order of Court is Filed Under Seal and Not to be Opened Until Further
Order." The subject of this order is not otherwise explained but FAB III
surmises that it refers to another part of the district court's judgment.

At about this time, FAB III began its efforts to obtain the settlement agreement
and the documents filed in federal court to enforce the settlement. In April
1985, FAB III and other creditors of HRA met with the district court and
requested it to unseal the documents. This request was denied without a written
order.

10

In June 1985, FAB III moved to submit its dispute with the Bank to arbitration
before the American Arbitration Association. The district court stayed the
federal proceedings while the arbitration proceeded. The arbitration is still
pending.

11

On July 1, 1985, FAB III filed a complaint in state court against the Bank and
HRA charging them with a continuing conspiracy to deny it money owed for its
work on the Hotel Rittenhouse project. In that complaint, FAB III charges that
as part of the conspiracy "the Bank and the Wolgin Group [HRA] agreed to seal
certain portions of the otherwise public proceedings in the federal court action."
App. at 15a.

12

Shortly thereafter, FAB III filed a formal motion with the district court to

unseal the settlement documents. Following what FAB III's brief characterizes
as "an informal conference in chambers," see Brief of Appellant at 9, the court
denied the motion to unseal. In a one-paragraph order, the court stated that it
had weighed "the public interest in access to judicial records," as well as FAB
III's interest in access to the settlement, against "the public and private interests
in settling disputes" and found that the latter interest was paramount. See App.
at 89a-90a. FAB III appeals the denial of its motion to unseal.2 II.
Scope of the Order
13

As a preliminary matter, we must determine whether the court's order denied

access only to the settlement agreement or whether it also reaffirmed the earlier
order sealing the motions and related documents. The written motion filed by
FAB III was "to unseal docket and court records," and alleged that "[n]o public
interests are served by the sealing of any portions of this Court's records
herein." App. at 9a, 10a. In their opposing memorandum filed in the district
court, HRA and the Bank treated FAB III's motion to unseal as directed to the
motions to enforce the settlement agreement and related papers, as well as the
settlement agreement itself. For example, that memorandum argued, "the only
material not open to the public is the parties' settlement agreement and certain
motions and briefs filed after settlement regarding interpretation of the
agreement which disclosed its terms." App. at 26a. However, the district court's
order of November 7, 1985 described the motion of FAB III as one "to unseal
the agreement of settlement" and denied "FAB III's motion to unseal the
agreement of settlement." The district court may not have distinguished
between the motions to enforce the settlement agreement and the agreement
itself because, as the brief of appellees HRA and Bank concedes, the "several
motions and briefs ... filed [in the district court] requesting the Court to enforce
the settlement agreement ... disclosed the terms of the settlement agreement."
Brief of Appellees at 5.

14

The briefs for all parties on appeal have treated the district court's order as
denying access to the motions to enforce the agreement, as well as to the
settlement agreement itself. Moreover, the appellees' brief states the issue for
review as, "Whether the District Court abused its discretion in denying a
motion to unseal a confidential settlement agreement and certain postsettlement motions, briefs and orders, which disclose the terms of the
settlement agreement." Id. at 1 (emphasis added). Therefore, we regard as
disingenuous the belated contention by counsel for the appellees, expressed at
oral argument, that the district court's order applies only to the settlement
agreement and leaves unresolved FAB III's motion to unseal the motion papers.

15

In the first place, the district court's order denied FAB III's motion in its
entirety. In the second place, the appellees never suggested in this court that
because part of the motion remained pending, the matter was not ripe for
disposition by this court. We will construe the district court's order as the
parties have construed it in their written position before this court and as the
district court apparently intended it, i.e., as a refusal to unseal not only the
settlement agreement that was filed of record in the district court in civil action
No. 83-2809 but also the motion papers filed of record in that court seeking to
enforce the settlement agreement, which papers disclose all or part of the terms
of that settlement agreement.

III.
Discussion
16

FAB III bases its claim for access to the documents filed in the district court on
the common law right of access, rather than on the First Amendment. The right
of the public to inspect and copy judicial records antedates the Constitution.
Criden I, 648 F.2d at 819 (citing United States v. Mitchell, 551 F.2d 1252,
1260 (D.C.Cir.1976)).

17

The Supreme Court reaffirmed the common law right of access to judicial
records and proceedings in Nixon v. Warner Communications, Inc., 435 U.S.
589, 98 S.Ct. 1306, 55 L.Ed.2d 570 (1978), where it held that there was a
presumption in favor of access to "public records and documents, including
judicial records and documents." Id. at 597, 98 S.Ct. at 1312 (footnotes
omitted); see also id. at 602, 98 S.Ct. at 1314.

18

This court first considered that right of access in Criden I, where we held that
there was a "strong presumption" that the public and the media were entitled to
access to tapes played during the criminal trial of two of the Abscam
defendants. 648 F.2d at 823. See also United States v. Martin, 746 F.2d 964 (3d
Cir.1984) (access to audiotapes introduced in evidence in criminal case
governed by Criden I ). We have also held that the common law presumption of
access encompasses as well all "civil trials and records." Publicker Industries,
Inc. v. Cohen, 733 F.2d 1059, 1066-67 (3d Cir.1984). More recently, we held
that "the common law right of access to judicial records enunciated in Criden I
is fully applicable to transcripts of sidebar or chambers conferences in criminal
cases at which evidentiary or other substantive rulings have been made." United
States v. Smith, 787 F.2d 111, 115 (3d Cir.1986) (footnote omitted) (Smith II ).

19

Other opinions in this court have grounded access to court hearings on the First

19

Other opinions in this court have grounded access to court hearings on the First
Amendment. In United States v. Criden, 675 F.2d 550 (3d Cir.1982) (Criden II
), we held that there is a First Amendment right of access to pretrial criminal
proceedings. In Publicker, we explicitly based our holding that the press and the
public could have access to a hearing in a civil proceeding and the transcript
thereof on the First Amendment right of access as well as the common law, 733
F.2d at 1067-71.

20

It follows from our decisions in Criden I, Smith II, and Publicker that the
common law presumption of access applies to motions filed in court
proceedings and to the settlement agreement between HRA and the Bank which
they filed and submitted to the district court for approval. Therefore, we need
not decide whether such a right might also be grounded on the First
Amendment, and decisions restricting access to other categories of records
under a construction of the First Amendment are inapplicable here. See Capital
Cities Media, Inc. v. Chester, 797 F.2d 1164 (3d Cir.1986) (in banc)
(investigative records of state environmental agency); First Amendment
Coalition v. Judicial Inquiry and Review Board, 784 F.2d 467 (3d Cir.1986) (in
banc) (records of judicial inquiry board).

21

HRA and the Bank argue that a settlement agreement is a nonpublic aspect of
litigation that "may properly be sealed from strangers to the agreement." Brief
of Appellees at 12. They rely on the Supreme Court's decision in Seattle Times
v. Rhinehart, 467 U.S. 20, 104 S.Ct. 2199, 81 L.Ed.2d 17 (1984). We find that
case inapposite. In Seattle Times, the Court held that the First Amendment did
not preclude the district court from entering a protective order limiting
disclosure of the products of pretrial discovery. Id. at 37, 104 S.Ct. at 2209-10.
Such discovery, however, which is ordinarily conducted in private, stands on a
different footing than does a motion filed by a party seeking action by the court.

22

In United States v. Smith, 776 F.2d 1104, 1111-12 (3d Cir.1985) (Smith I ), we
rejected the argument that under Seattle Times, the bill of particulars was like
civil discovery to which there was no right of access. We held that a bill of
particulars is more akin to an indictment, that public access to an indictment is
protected by the First Amendment and the common law right of access to the
judicial process, and that denial of access must be justified by overriding
interests. Similarly, unlike the civil discovery materials at issue in Seattle
Times, a motion or a settlement agreement filed with the court is a public
component of a civil trial. As in the cases involving trial rulings or evidence
admitted, the court's approval of a settlement or action on a motion are matters
which the public has a right to know about and evaluate.3

23

Just as the right of access is firmly entrenched, so also is the correlative

23

Just as the right of access is firmly entrenched, so also is the correlative

principle that the right of access, whether grounded on the common law or the
First Amendment, is not absolute. Our opinions may be read to suggest that
there are somewhat different standards, depending on whether access is sought
under the common law presumption or under the First Amendment. In
Publicker, we required the party opposing access to show " 'an overriding
interest based on findings that closure is narrowly tailored to serve that interest.'
" 733 F.2d at 1073. This standard was taken from Press-Enterprise Co. v.
Superior Court, 464 U.S. 501, 510, 104 S.Ct. 819, 824, 78 L.Ed.2d 629 (1984),
a First Amendment case. In Criden I, we held the strong common law
presumption of access must be balanced against the factors militating against
access. 648 F.2d at 818. See also United States v. Criden, 681 F.2d 919, 921
(3d Cir.1982) (Criden III ). The burden is on the party who seeks to overcome
the presumption of access to show that the interest in secrecy outweighs the
presumption.

24

Because we base our decision in this case on the common law right of access,
we will apply the balancing approach articulated in Criden I and Criden III, and
do not reach the issue whether that standard differs from that to be applied
under the First Amendment. See Smith I, 776 F.2d at 1112.

25

The district court was cognizant that its decision required it to balance the
factors favoring secrecy against the common law presumption of access. In
denying FAB III's motion for access to the settlement documents, the court
held that the "public and private interests in settling disputes" outweighed the
"public interest in access to judicial records" and FAB III's private interest in
knowing the terms of the settlement. App. at 89a-90a.

26

The balancing of the factors for and against access is a decision committed to
the discretion of the district court, see Nixon v. Warner Communications, Inc.,
435 U.S. at 599, 98 S.Ct. at 1312, although it is not generally accorded the
narrow review reserved for discretionary decisions based on first-hand
observations. Criden I, 648 F.2d at 818. Thus, the issue before us is whether
the district court abused its discretion in holding that the judicial policy of
promoting the settlement of litigation justifies the denial of public access to
records and proceedings to enforce such settlements.

27

We acknowledge the strong public interest in encouraging settlement of private

litigation. Settlements save the parties the substantial cost of litigation and
conserve the limited resources of the judiciary. In order to encourage the
compromise and settlement of disputes, evidence of settlements or offers of
settlement are ordinarily not admissible in federal proceedings. See Fed.R.Evid.

408 and advisory committee note thereto; Fed.R.Civ.P. 68. Thus, it is likely
that had HRA and the Bank chosen to settle and file a voluntary stipulation of
dismissal, as provided in Rule 41(a)(1) of the Federal Rules of Civil Procedure,
they would have been able to prevent public, and even FAB III's, access to
these papers. That is not the course the parties chose.
28

Instead, HRA and the Bank filed their settlement agreement in the district
court, because, as they frankly concede, they anticipated that they would
disagree on the terms, and would want recourse to the court. That, of course, is
precisely what occurred.

29

Judge Garth has written an interesting and vigorous essay about the importance
of settlement to the overburdened court systems of this country. Since the
proposition is self-evident, it is intended to, and undoubtedly will, touch a
sympathetic chord in the hearts of all judges who, after all, bear much of the
burden of the litigation explosion to which Judge Garth refers.

30

Noteworthy, however, is the fact that Judge Garth practically ignores the
relevant posture of the case before us. This is not like FDIC v. Ernst & Ernst,
677 F.2d 230 (2d Cir.1982), which he relies on, where there was an effort to
unseal a settlement agreement made two years earlier. Here, there were
motions filed and orders entered that were kept secret, in direct contravention of
the open access to judicial records that the common law protects. FAB III
began its efforts to unseal the court papers almost immediately after these court
documents were filed and sealed.

31

In the name of encouraging settlements, Judge Garth would have us

countenance what are essentially secret judicial proceedings. We cannot permit
the expediency of the moment to overturn centuries of tradition of open access
to court documents and orders.

32

Having undertaken to utilize the judicial process to interpret the settlement and
to enforce it, the parties are no longer entitled to invoke the confidentiality
ordinarily accorded settlement agreements. Once a settlement is filed in the
district court, it becomes a judicial record, and subject to the access accorded
such records.

33

Such public access serves several of the important interests we identified in our
earlier cases. First, it promotes "informed discussion of governmental affairs by
providing the public with [a] more complete understanding of the judicial
system" and the "public perception of fairness which can be achieved only by

permitting full public view of the proceedings." See Smith II, 787 F.2d at 114
(citing Criden II, 675 F.2d at 557). Disclosure of settlement documents serves
as a check on the integrity of the judicial process. See Smith II, 787 F.2d at
114; Wilson v. American Motors Corp., 759 F.2d 1568, 1571 (11th Cir.1985).
Although FAB III does not allege that the district court engaged in any
impropriety, as a general proposition access assures "that the courts are fairly
run and judges are honest". Crystal Grower's Corp. v. Dobbins, 616 F.2d 458,
461 (10th Cir.1980). The applicability and importance of these interests are not
lessened because they are asserted by a private party to advance its own
interests in pursuing its lawsuits against the Bank and HRA.
34

In reaching its conclusion that access should be denied, the district court relied
on the decision in In re Franklin National Bank Securities Litigation, 92 F.R.D.
468 (E.D.N.Y.1981), aff'd sub nom. FDIC v. Ernst & Ernst, 677 F.2d 230 (2d
Cir.1982), where the court refused to set aside a protective order that preserved
the confidentiality of a settlement of complex multidistrict litigation arising out
of the insolvency of one of the nation's largest banks. Two years after the
settlement, a public interest group and its lawyer sought to modify the
confidentiality order, which the district court declined to do. It appears that in
their unsuccessful appeal, the appellants relied on the Freedom of Information
Act rather than on the common law right of access to judicial records.

35

In any event, both the district and circuit court opinion stressed the magnitude
of the litigation that had been settled and the public interest involved. The
FDIC had sued a multitude of parties, including Ernst & Ernst, one of the bank's
accountants, to recover the funds the FDIC had paid to the bank's depositors.
"The litigation was protracted. During the five years after Franklin National
Bank's failure, millions of documents were collected; more than a hundred
thousand pages of depositions were taken, and millions of dollars in legal fees
were incurred." FDIC v. Ernst & Ernst, 677 F.2d 230, 231 (2d Cir.1982). On
the first day of what the district court believed would be "a bitterly contested
trial lasting at least six months," In re Franklin National Bank Litigation, 92
F.R.D. at 469, Ernst & Ernst agreed to settle with the FDIC, provided the
settlement would be kept confidential. The district court noted the litigation had
already engendered 11 reported opinions. "Former directors and officers,
classes of shareholders, governmental agencies and accountants were the
adversaries. Had the trial continued, many millions of dollars more would have
been expended in legal fees, a trial part would have been heavily engaged for a
long period, more appeals were inevitable and jurors would have been
inconvenienced." Id. at 470.

36

We need not decide whether we would regard a comparable showing as

sufficing to override the strong presumption of access. We leave that issue open
because no such showing has been made here. The settlement agreement
between HRA and the Bank pertained to a single dispute between a small group
of parties, unlike the multitude of parties involved in Ernst & Ernst. Moreover,
the district court did not rely on any particularized showing of the need for
continued secrecy, as asserted in Ernst & Ernst, but instead only on the general
interest in encouraging settlement. As we have held, that is not enough. Even if
we were to assume that some settlements would not be effectuated if their
confidentiality was not assured, the generalized interest in encouraging
settlements does not rise to the level of interests that we have recognized may
outweigh the public's common law right of access. See Criden I, 648 F.2d at
829 (evidence which may inflict "unnecessary and intensified pain on third
parties who the court reasonably finds are entitled to such protection" may be
protected); Smith I, 776 F.2d at 1113 (access denied to sealed bill of particulars
because of "risk of serious injury to innocent third parties").4
IV.
Conclusion
37

We conclude that the district court abused its discretion in denying FAB III's
motion to unseal the motions and settlement agreement papers. We will reverse
the order of the district court and remand so that the court may enter an order in
accordance with this opinion. We will also dismiss the appeal in No. 85-1754.
See note 2, supra.
GARTH, Circuit Judge, dissenting:

38

In this case, the Bank and HRA, the developer, settled a financing dispute after
a court action had been commenced. At the request of both parties, their
settlement agreement was sealed by the court in February 1985.

39

In July 1985, some five months later, FAB III, a contractor who had furnished
services to HRA, without having intervened in the Bank-HRA litigation,
applied to the district court to unseal the Bank-HRA agreement. The district
court denied FAB's motion and refused to unseal the agreement holding that
FAB's claimed interest in access to the sealed information did not outweigh the
public and private interests in favor of settling disputes.

40

The majority today, totally disregarding the difference between the sealing and
the unsealing of an agreement, in an unprecedented decision, holds that the
interest in settlement may not outweigh the public's right of access even in

private litigation. I cannot agree, and therefore, I dissent.

I.
41

I believe that the majority misconstrues the issue now before the court. The
majority opinion claims the issue before us to be: " ... under what
circumstances [may] documents filed in the district court ... be sealed from
public access." Maj.Op., at 340. See also Maj.Op., at 345. However, that is not
the issue this case presents. The question before us is not whether material
which is already public should now be sealed; the question on this appeal is
whether a privately negotiated settlement agreement, agreed to and entered into
a court record only on condition that it remain secret, should now be unsealed
because of the district court's supposed abuse of discretion in permitting it to be
filed under seal.1

42

The resolution of the correct issue raised here dictates a different approach than
the majority has taken: an approach that would protect the reliance interests of
the parties absent exceptional circumstances. I therefore disagree with the
majority's decision to order the Bank-HRA settlement agreement terms
unsealed.

43

Moreover, in reviewing the district court's denial of FAB's motion to unseal the
Bank-HRA agreement, the majority adopts, for all practical purposes, a per se
rule that the interest in settling cases can never outweigh the public's right of
access and thereby justify a court in sealing the terms of a voluntary settlement.
The majority opinion holds " ... the generalized interest in encouraging
settlements does not rise to the level of interests that we have recognized may
outweigh the public's common law right of access. See Criden I, 648 F.2d at
829 ... [and] Smith I, 776 F.2d at 1113 ..." Maj.Op., at 346. The majority's
holding on this point is not compelled by any precedent (certainly not by
Criden I or Smith I, which are the only authorities cited for that extraordinary
proposition), and it utterly ignores the importance of, and the practical realities
surrounding, the process of settling lawsuits.

44

Because I believe that the public and private interest in encouraging settlement
is entitled to significant weight, and because the majority's analysis and holding
cannot help but impair seriously the efficacy of judicial efforts to encourage
settlement of many cases, I cannot join in this result. For this reason, too, I
respectfully dissent.

II.

45

As the majority recognizes, in deciding whether the common law right of

access compels disclosure of materials before the court, the district court must
"weigh[ ] the interests advanced by the parties in light of the public interest and
the duty of the courts." Nixon v. Warner Communications, 435 U.S. 589, 602,
98 S.Ct. 1306, 1314, 55 L.Ed.2d 570 (1978). This court has held that the
common law right of access creates a presumption of access to all judicial
records and documents. United States v. Smith, 776 F.2d 1104, 1110 (3d
Cir.1985); United States v. Martin, 746 F.2d 964, 968 (3d Cir.1984). I therefore
agree that, as a general matter, the common law right of access applies to
settlement agreements when such agreements are filed with the court and
become a part of the public record.

46

However, a settlement agreement that has never been disclosed to the public,
but which was only entered into the record by the parties with the
understanding that it would remain secret, presents a situation different from
any situation that this court has addressed before. Although a presumption of
access certainly arises when a court seals the transcript of a sidebar conference
that has already taken place on the record in open court, United States v. Smith,
787 F.2d 111, 112 (3d Cir.1986), or when a party seeks access to material
already entered into evidence and provided to the jury, United States v. Criden,
648 F.2d 814, 815 (3d Cir.1981), this case involves material and information
that was never public, giving rise to a new and different factor: the reliance of
the parties on the initial and continuing secrecy of the settlement agreement.

47

Although this court has not apparently addressed this precise situation, the
Second Circuit has held that, "[o]nce a confidentiality order has been entered
and relied upon, it can only be modified if an 'extraordinary circumstance' or
'compelling need' warrants the requested modification." FDIC v. Ernst & Ernst,
677 F.2d 230, 232 (2d Cir.1982). The Second Circuit therefore affirmed the
denial of a motion to lift a protective order sealing a settlement agreement.2 The
Second Circuit recently reaffirmed its holding on this point. Palmieri v. State of
New York, 779 F.2d 861, 864-65 (2d Cir.1985).

48

The Ernst & Ernst case, while not controlling in this court, presents what I
regard as a sensible standard and a sensible result. Although the common law
right of access must be given due regard, a court cannot operate in a vacuum.
To apply mechanistically the same test no matter what the factual
circumstances, is to risk doing injustice to parties before the court.

49

Therefore, I agree that when a document or item of evidence has been entered
into the public record without any reliance on secrecy, the interests of the

parties seeking to seal or unseal such material must be weighed in light of a

presumption of openness. However, when a document has only been entered
into the record in reliance on an order keeping it under seal, and when time has
passed and the parties have acted in reliance on the terms of that settlement
remaining under seal, I would hold with the Second Circuit that the
presumption must shift. While the public interest in openness of court records
must nevertheless be factored into the balance, I think it is appropriate that a
protective order or seal order which itself induced the production or entry of the
contested material be presumed to remain in effect, absent a showing of an
"extraordinary circumstance" or "compelling need" by a third party seeking to
unseal that information.
50

Indeed, in denying FAB III's motion to unseal the settlement in this case, the
district court cited Ernst & Ernst. See App. at 90. The majority opinion here
also cites to Ernst & Ernst, but nowhere in its opinion does it address the Ernst
& Ernst standard for unsealing.3

51

I would urge the adoption of the Ernst & Ernst standard and hold that where, as
here, a settlement agreement has been filed with the court in reliance upon its
being sealed, a third party who comes along after the fact bears the burden of
establishing a "compelling need" or other "extraordinary circumstance"
justifying access to the sealed agreement. I would further hold that because no
such need or circumstance has been demonstrated, the burden has not been
carried in this case, and the order of the district court should therefore be
affirmed.

III.
52

Even if I were to accept (which I do not) the majority's holding that the
presumption in favor of access to judicial records still applies when a third
party seeks to unseal a settlement agreement entered under seal and in reliance
upon secrecy, I still could not agree to the majority's rule of law that the interest
in settling cases cannot serve to rebut the presumption of access and therefore
cannot justify the sealing of a settlement agreement. See Maj.Op., at 345-347. I
believe that such a rule is completely out of touch with the reality of running a
trial court docket--a reality with which our district court judges must wrestle
every day--and if permitted to remain as the law of our circuit will wreak havoc
with judicial efforts to encourage settlement of appropriate cases.

53

Although I believe the matter to be self-evident, the majority's out-of-hand

rejection of the encouragement of settlement as a relevant factor in the decision
to seal a settlement agreement requires me to explain both why I believe that

fostering voluntary settlements of civil disputes is desirable and necessary, and

why this goal will be unavoidably subverted by the majority's holding in this
case.
A.
54

It is impossible to gainsay that we have experienced a litigation explosion in the

United States during the last twenty years, and that developing techniques for
managing the increased caseloads and for otherwise stemming the burgeoning
tide of litigation costs has become a subject of intense interest and debate. See
generally, Symposium, Reducing the Costs of Civil Litigation, 37 Rutgers
L.Rev. 217 (1985). Between 1973 and 1983, new filings of civil cases in the
federal district courts rose from 98,560 to 241,842, an increase of 145 percent.
Levin & Colliers, Containing the Cost of Litigation, 37 Rutgers L.Rev. 219, 27
n. 24 (1985). Perhaps more importantly, the number of long, complex, and
difficult-to-try cases has also increased dramatically. The federal courts held
213 trials lasting 20 days or more in 1973. The figure doubled to 426 by 1983.
Id. at 229.

55

To cope with the increasing volume of litigation, many commentators have

advocated an active, "managerial" role for judges in supervising the course of
litigation--a role that includes the encouragement of a variety of alternate means
of resolving disputes short of full-dress trials. See Wall, Schiller & Ebert,
Should Judges Grease the Slow Wheels of Justice? A Survey on the
Effectiveness of Judicial Mediary Techniques, 8 Am.J. Trial Advoc. 83 (1984);
Burger, Isn't There a Better Way?, 68 A.B.A.J. 274 (1982).

56

Although arbitration, mediation, mini-trials, and other forms of alternative

dispute resolution have gained prominence in recent years as potent weapons in
the war against litigation glut, the key component of every rational approach to
reducing the burden on our clogged court dockets has been and remains
settlement. With very rare exceptions, see Fiss, Against Settlement, 93 Yale
L.J. 1073 (1984), commentators and judges who may concur on little else,
agree on the value and necessity of a vigorous policy of encouraging fair and
reasonable settlement of civil claims whenever possible. Indeed, the literature
on the settlement of civil suits focuses not on whether settlement is desirable,
but on how best to achieve it and how far a judge should go to encourage it.
See, e.g., Provine, Settlement Strategies for Federal Judges (1986) (Federal
Judicial Center Study); Craig & Christianson, The Settlement Process, 59
F.R.D. 203, 252 (1973); Fox, Settlement: Helping the Lawyers to Fulfill Their
Responsibility, 53 F.R.D. 129 (1971).

57

This court, too, has recognized the overwhelming importance of settling civil
suits and avoiding the wasted resources and institutional burden of trying every
case:

58
Voluntary
settlement of civil controversies is in high judicial favor. Judges and
lawyers alike strive assidously to promote amicable adjustments of matters in
dispute, as for the most wholesome of reasons they certainly should. When the effort
is successful, the parties avoid the expense and delay incidental to litigation of the
issues; the court is spared the burdens of a trial and the preparation and proceedings
that must forerun it.
59

Pennwalt Corp. v. Plough, Inc., 676 F.2d 77, 80 (3d Cir.1982).

60

Indeed, recognition of the desirability of settlement has even found its way into
the Federal Rules of Civil Procedure. Rule 16 was amended in 1983 to include
the pursuit of settlement as an express goal of the pretrial conference. See
Fed.R.Civ.P. 16(a)(5); 6 C. Wright & A. Miller, Federal Practice and Procedure
Sec. 1521 (West Supp. 1986). Thus, an activist role for judges in managing
cases--and encouraging their settlement--has expressly been provided for under
the federal rules.

61

As any trial judge knows, the settlement of civil cases is not just a permissible
and desirable goal, but a practical necessity. In one study of cases filed in ten
courts, fully 88 percent were settled; only nine percent went to trial. Galanter,
Reading the Landscape of Disputes: What We Know and Don't Know (and
Think We Know) About Our Allegedly Contentious and Litigious Society, 31
U.C.L.A.L.Rev. 4, 28 (1983).

B.
62

While the importance of settlement would seem to be self-evident, I believe it is

equally obvious that confidentiality is often a key ingredient in a settlement
agreement--and that many settlements would not be reached if the secrecy of
their terms could not be safeguarded.

63

Both courts and commentators have recognized the crucial role of

confidentiality in facilitating settlement of civil cases. See Provine, Settlement
Strategies, supra, at 34; Marcus, Myth and Reality in Protective Order
Litigation, 69 Cornell L.Rev. 1, 28, 49 (1983). In addition, the need to keep
secret the terms of a settlement has been recognized as a justification for
imposing a protective order guaranteeing confidentiality of certain discovery

material exchanged prior to settlement. Id. at 49, 52.

64

Indeed, the protective order affirmed by the Second Circuit in the Ernst & Ernst
case (and discussed at length in the majority opinion at page 346) was expressly
predicated upon the necessity of guaranteeing confidentiality as a condition of
settlement. As the district court judge explained:

65 was a complex, multi-district case involving numerous defendants and

This
numerous plaintiffs. If an agreement could not be concluded, the trial would have
lasted at least six months, necessitating enormous expenditures of both litigant and
judicial resources. In addition to extensive costs already borne by the [parties] prior
to the trial, litigation expenses likely would have consumed the balance of insurance
protecting the individual defendants and providing some security for collection of
the ultimate judgment.
66

All parties were cognizant of the fact that a critical factor in averting these
untoward results was the element of confidentiality.... Without secrecy of the
terms, a settlement would not have been consummated.

***
67
***
68
69 strong public policy favoring settlement of disputes, particularly in
[T]he
complicated cases, and the importance of the stability of judgments and settlements,
argue strongly against modification of the order.
70

In re Franklin National Bank Securities Litigation, 92 F.R.D. 468, 472

(E.D.N.Y.1981), aff'd sub nom. FDIC v. Ernst & Ernst, 677 F.2d 230 (2d
Cir.1982) (emphasis added).

71

While few cases address the question of the sealing of settlement agreements, I
suspect that this is because many trial judges regard it as self-evident that
secrecy is often necessary and they therefore order settlement agreements filed
under seal as a matter of course. This conclusion is supported by the frequent
references to such sealings made without comment or challenge in reported
cases. See, e.g., Marine Midland Bank, N.A. v. Kilbane, 739 F.2d 958, 959 (4th
Cir.1984); Owen v. United States, 713 F.2d 1461, 1462 (9th Cir.1983);
E.E.O.C. v. Strasburger, Price, Kelton, Martin and Unis, 626 F.2d 1272, 1274
(5th Cir.1980).

72

Parties may have many reasons for desiring secrecy for the terms of their

settlements.4 Settlement agreements may include trade secrets or information

that threaten the privacy of the parties. See Nixon v. Warner Communications,
Inc., 435 U.S. 589, 598, 98 S.Ct. 1306, 1312, 55 L.Ed.2d 570 (1978). While
this kind of information would itself justify a seal order, parties may in good
faith be concerned about releasing a far wider range of information, including
information which would not itself entitle the parties to a protective order, but
which might stand in the way of settlement if required to be disclosed.
73

The necessity for confidentiality may be particularly acute in the mass tort area,
where a defendant must look beyond the parameters of a settlement with a
single plaintiff and anticipate the impact of its settlement on innumerable future
cases. As Edward A. Dauer, Associate Dean of Yale Law School, explained in
a Second Circuit Judicial Conference discussion on alternative dispute
resolution:

74
There
are legitimate, good faith reasons for the parties who are trying to work out a
solution to something like this toxic tort case to want their discussions to be private,
immune both from later admission and immune from discovery by other potential
plaintiffs' lawyers later down the road, maybe even from competitors, and I think
there are good faith reasons for wanting that privacy. That confidentiality is a very
large advantage that will, if it can be guaranteed, make these kind of [alternative]
procedures even more useful as adjuncts to the judicial process than they already
are.
75

101 F.R.D. 161, 233 (1983).

76

For example, if a defendant facing multiple plaintiffs seeks to settle a

meritorious claim for a certain sum of money, it may be deterred from doing so
if it knows that the terms of such a settlement would have to be made public.
The defendant may reasonably assume that disclosure of the comparatively
favorable settlement terms would interfere with its ability to settle other cases
for smaller amounts. I have no doubt that if all such settlement details were by
rule of law always public, many settlements would never take place at all.
Many defendants would almost certainly proceed to trial rather than broadcast
to all potential plaintiffs how much they might be willing to pay.

77

Moreover, it is precisely in the context of mass torts with multiple plaintiffs-such matters as air disasters, toxic injuries, and product liability claims--that the
interest in settlement is particularly strong. Such cases are characteristically
long, complex, and costly to try, and the savings in public and private resources
achieved by settling them are immense. As one judge familiar with the trial of
mass tort cases noted:

78 saving one week of judicial time per case would, as most trial judges know, be
Even
substantial. For example, in the Dalkon Shield litigation, the record disclosed that, if
the usual percentage (90) of the 1000 members statewide class settled their cases,
the savings of judicial resources in the trial of the remaining 100 would amount to
400 weeks, or, roughly eight years of trial time. In addition, there would be an
estimated savings of $26 million in litigation expense to the parties and $7 million of
court expenses.
79

Williams, Mass Tort Class Actions: Going, Going, Gone?, 98 F.R.D. 323, 328
(1983) (Footnotes omitted).

80

The rule announced today by the majority flies in the face of this reality. 5 By
holding that settlement agreements may not be sealed to serve the interest of
encouraging settlements, I believe the majority has removed from the discretion
of our district courts an important technique for encouraging settlement. It is
my belief that district court judges in this circuit will read the majority's opinion
to the same effect.

81

Under the majority's rule, a district court judge faced with the prospect of a six
month, 12 month or longer trial, who is told by the parties that they would
settle the case if the terms of settlement could be filed with the court under
seal, would have only one choice--to reject the settlement and proceed to trial.
The judge would have no discretion to accept the settlement under seal even if
the proposed settlement contained little information of public interest and the
interests of both sides of the dispute would be furthered by the settlement.

82

With all due respect to my colleagues in the majority, theirs is an illogical and
impractical result. We are dealing here not with a constitutional right, but with a
flexible common-law rule that has historically been applied subject to the
discretion of the district court. Moreover, decisions regarding the management
of its docket and the expediting of case resolutions would seem to lie at the
core of the district court's discretionary powers. Therefore, assuming that a
district court judge correctly weighs the public and private interests involved in
deciding whether to order a settlement admitted under seal, I can see no reason
why (contrary to the majority rule) the interest in encouraging settlement
should not be entitled to due weight.6 Indeed, any other rule would improperly
abridge the traditional discretion of the district judge and seriously impair the
ability of judges to expedite settlement.

IV.
83

Had the majority in this case recognized that the decision to seal and to unseal

83

Had the majority in this case recognized that the decision to seal and to unseal
settlement agreements was to be left to the discretion of the district court
employing the Nixon standard and burden of proof for sealing, and the Ernst &
Ernst standard and burden of proof for unsealing--standards which the district
court here utilized--I would have had far less reason to disagree with the
majority result.

84

In this case, the district court acknowledged the correct standards and
concluded in its order that "FAB III's asserted interest in access to the sealed
information does not outweigh the public and private interests in favor of
settling disputes." App. at 90. Although I believe that the district court thereby
satisfied its duty to weigh the relevant factors, I could nevertheless understand
how others might prefer a more detailed and particularized discussion of how
the various asserted interests were, and were not, served on the facts before the
court. In such a situation, however, the indicated resolution would have
involved no more than a remand to the district court for a fuller statement of its
reasons in denying FAB's motion to unseal.

85

Unfortunately, the majority holds instead that the interest in settling cases
cannot justify sealing a settlement agreement. Consistent with that holding the
majority reverses the district court's order.

86

I believe the adoption of such a rule can only be counter-productive and must
necessarily have the effect of discouraging settlement in many cases that would
otherwise be routinely ended by the parties' agreement. This, in turn, will
undoubtedly force costly and ultimately unnecessary trials.

87

Accordingly, I respectfully dissent from the majority's judgment, and, rather

than reverse, I would affirm the district court's order which refused to unseal
the Bank-HRA settlement agreement.

The caption shows a third party action, which none of the parties before us have
elucidated

The order and notice of appeal were captioned in both the Bank's suit against
HRA and FAB III's suit against the Bank. Appellees have challenged the
appealability of that order. In prior cases in this court, orders granting or
denying access to sealed portions of the record have been found appealable. See
United States v. Smith, 787 F.2d 111, 113 (3d Cir.1986) (Smith II ) ("An order
denying access to portions of a trial record is appealable as a final order
pursuant to 28 U.S.C. Sec. 1291"); United States v. Criden, 648 F.2d 814 (3d

Cir.1981) (Criden I ) (appeal of order denying access to tapes that were

introduced in evidence); Publicker Industries, Inc. v. Cohen, 733 F.2d 1059 (3d
Cir.1984) (appeal of orders closing a hearing). See also In re Continental
Illinois Securities Litigation, 732 F.2d 1302, 1307-08 (7th Cir.1984) (holding
such orders to be collateral and appealable pursuant to Cohen v. Beneficial
Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949)).
Because we have jurisdiction to hear the appeal in number 85-1753, the BankHRA suit, we need not decide if the order in 85-1754, the pending FAB III
action, is appealable. The latter appeal will be dismissed
The appellees also challenge FAB III's standing to appeal the order in the BankHRA case. In United States v. Criden, 675 F.2d 550, 552 n. 2 (3d Cir.1982)
(Criden II ), we "assum[ed] that [the party seeking the documents] must move
to intervene on each matter that it wishes to preserve for appeal," but we held
that the district court's orders denying access to the sealed documents
"implicitly grant[ed] [the movant] intervenor status." Apparently, no motion to
intervene was made here because FAB III was already a party in one of the two
cases in which the motion was filed. It would be a needless formality to require
FAB III to return to the district court to file a motion to intervene in the BankHRA suit at this late date.
3

This court's decisions in Cipollone v. Liggett Group, Inc., 785 F.2d 1108 (3d
Cir.1986), and New York v. United States Metals Refining Co., 771 F.2d 796
(3d Cir.1985), which the appellees also rely on, are similarly distinguishable.
Both involved challenges to protective orders limiting disclosure of discovery
material. Thus, for the reasons that Seattle Times does not govern this case,
these decisions also are inapposite

Because we conclude that the general interest in encouraging settlement is not

enough to overcome the presumption of access to judicial records, we need not
decide if FAB III's assertion of a particularized need for the settlement
documents would further tilt the balance toward disclosure

Curiously, the majority opinion acknowledges the "unsealing" issue which the
parties identified by stating, "We will construe the district court's order as the
parties have construed it ... i.e., as a refusal to unseal ... the settlement
agreement." Maj.Op., at 342. However, having identified the true issue that was
appealed, the majority opinion then fails to either discuss, address or resolve
that issue in its opinion

In the district court opinion affirmed by the Second Circuit, now Chief Judge
Weinstein wrote:
The settlement agreement resulted in the payment of substantial amounts of

money and induced substantial changes in position by many parties in reliance

on the condition of secrecy. For the court to induce such acts and then to
decline to support the parties in their reliance would work an injustice on these
litigants and make future settlements predicated upon confidentiality less likely.
In re Franklin National Bank Securities Litigation, 92 F.R.D. 468, 472
(E.D.N.Y.1981), aff'd sub nom. FDIC v. Ernst & Ernst, 677 F.2d 230 (2d
Cir.1982).
3

The majority has steadfastly declined to explain why it has refused to

acknowledge the evident difference between the act of initial sealing under the
Nixon standard--an act which involves no reliance--and the act of subsequent
unsealing under the Ernst & Ernst standard, where the factor of the parties'
reliance is of primary concern. Instead the majority attempts to blur the
significance of this distinction by stressing the timeliness of the unsealing
motion brought by a third party and by claiming that "secret judicial
proceedings" should not be countenanced as they will lead to the "overturn of
centuries of tradition of open access" Maj.Op., at 345. I suggest that these are
make-weight arguments
First, it is not the timeliness of a third party's "unsealing" application that
matters. Rather, it is the reliance by the settling parties on the fact that the
sealed materials will remain sealed that marks the essential difference between
a court sealing a settlement agreement and a court, at some later date, granting
an application to unseal that document. Because such settlements cannot readily
or practicably be withdrawn. Ernst & Ernst requires that the parties seeking to
unseal a relied upon sealed settlement, demonstrate extraordinary
circumstances or a compelling need. Timeliness was not the thrust of Ernst &
Ernst--reliance was.
The fact that in this case FAB waited five months--from February to July 1985-before it applied to unseal the Bank-HRA agreement has little bearing on the
fact that neither the Bank nor HRA would have entered into the settlement had
they not relied upon the district court's act in preventing disclosure of their
agreement. Thus, the majority's attempt to distinguish Ernst & Ernst on the
ground of "timeliness" is irrelevant.
Nor is it an answer to the Ernst & Ernst "unsealing" formula to characterize the
sealing of documents as "secret judicial proceedings" tending to "overturn
centuries of tradition." Id. at 345. The district court employed the Nixon
standard when it agreed to seal the Bank-HRA agreement. By balancing the
various interests which Nixon requires a court to consider, the district court, in
accordance with established Supreme Court precedent, determined that the

Bank-HRA agreement should not be disclosed to third parties. I suggest that

branding such an action as a "secret judicial proceeding," with all that such a
term may connote, and claiming that sealing practices will "overturn centuries
of tradition of open access" is not an adequate substitute for reasoned judicial
analysis.
4

The majority suggests that parties seeking to keep their settlement terms secret
should simply stipulate on the record to dismiss the case while negotiating a
private settlement. However, this approach is not always practicable, since the
parties may, as in the present case, require the further involvement of the court
in enforcing the terms of the settlement: a more efficient mechanism than
bringing an entirely new suit. Moreover, the court may require terms of
settlement to be submitted for its approval as to their fairness and
reasonableness. In addition, many settlements, particularly in the mass tort and
other contexts may not be implemented without the court's assistance. This is
especially so when payments and document exchanges are deferred over
extended periods of time

The majority attempts to skirt this problem by purporting to leave open the
issue of what, if any, showing would be necessary to override the strong
presumption of access. Maj.Op., at 346. I do not read this attempt, and I
seriously doubt whether district court judges will read this attempt, as diluting
in any meaningful manner the majority's holding that a district court judge in
this circuit henceforth will no longer be permitted to seal settlement agreements

Assuming that the district court made specific findings indicating that the
interest in settlement was strongly served on the facts of this case, that the
public interest in openness was not, and that the interests of the third party (in
this case FAB III) in obtaining access to the settlement were not substantial, I
believe it would be within the discretion of the district court to order that the
settlement agreement remain under seal