Sjostrom et al v. Kraatz et al

Filing 12

ORDER Denying Amended Motion to Seal Case 10 . The Case Management Conference Scheduled for 7/28/16 is vacated. The Plaintiffs shall file a status report or dismissal within 30 days. Signed by Magistrate Judge Donna M. Ryu on 7/21/2016. (dmrlc3, COURT STAFF) (Filed on 7/21/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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JOEL SJOSTROM, et al.,

Case No. 16-cv-01381-DMR

Plaintiffs,
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v.

ORDER DENYING AMENDED
MOTION TO SEAL THE COMPLAINT

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HARRY R KRAATZ, et al.,

Re: Dkt. No. 10

Defendants.

United States District Court
Northern District of California

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On March 21, 2016, Plaintiffs Joel Sjostrom and Aegis Retail One, LLC (“Plaintiffs”) filed

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a complaint alleging claims for fraud, breach of fiduciary duty, intentional interference with

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prospective economic relations, violation of federal securities law, violations of the Racketeering

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and Corrupt Organizations Act, and unfair competition against Defendants Harry Kraatz and

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HKSB, LLC. Complaint [Docket No. 1]. On June 21, 2016, Plaintiffs filed a motion to seal the

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complaint in its entirety. Plaintiffs assert that the parties have reached a full settlement, and that

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upon full review of the facts, Plaintiffs now believe that they do not have a sufficient basis to

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litigate the case. Plaintiffs therefore seek to seal the complaint because the allegations made

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therein could harm Kraatz’s reputation. Amended Motion to Seal (“Mot.”) [Docket No. 10]. The

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court has determined that this matter is appropriate for resolution without oral argument pursuant

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to Civil Local Rule 7-1(b). The motion hearing set for July 28, 2016 is hereby vacated.

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I.

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LEGAL STANDARD
The public has a right of access to judicial proceedings and court records are normally

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open to the public. Nixon v. Warner Communications, 435 U.S. 589, 597 (1978) (“It is clear that

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the courts of this country recognize a general right to inspect and copy public records and

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documents, including judicial records and documents” (citations omitted)). The Ninth Circuit

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“start[s] with a strong presumption in favor of access to court records.” Foltz v. State Farm Mut.

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Auto. Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003). Two standards govern motions to seal court

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documents. A “compelling reasons” standard applies to dispositive motions, such as motions for

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summary judgment. A “good cause” standard applies to non-dispositive motions, such as

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discovery motions. Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1179 (9th Cir. 2006).

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Motions that are technically non-dispositive may still require the party to meet the “compelling

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reasons” standard when the motion is more than tangentially related to the merits of the case. Ctr.

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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

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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

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United States District Court
Northern District of California

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purposes,’ such as the use of records to gratify private spite, promote public scandal, circulate

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libelous statements, or release trade secrets.” Id. (quoting Nixon, 435 U.S. at 598), or where court

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files may serve “as sources of business information that might harm a litigant’s competitive

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standing.” Nixon, 435 U.S at 598-99.
Under the local rules in this district, sealing orders “may issue only upon a request that

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establishes that the [information] is privileged or protectable as trade secret or otherwise entitled to

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protection under the law.” Civil L.R. 79-5(b). All requests to file under seal must be “narrowly

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tailored,” such that only sealable information is sought to be redacted from public access. Id.

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II.

ANALYSIS
Plaintiffs seek to seal the complaint in its entirety. Because the complaint is more than

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tangentially related to the merits of the case, the compelling reasons standard governs the sealing

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request. Schwartz v. Cook, No. 5:15-CV-03347-BLF, 2016 WL 1301186, at *1 (N.D. Cal. Apr. 4,

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2016) (compelling reasons standard governed motion to seal portions of the complaint); In re

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NVIDIA Corp. Derivative Litig., No. 06–cv–06110–SBA, 2008 WL 1859067, at *3 (N.D. Cal.

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Apr. 23, 2008) (“While a complaint is not, per se, the actual pleading by which a suit may be

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disposed of, it is the root, the foundation, the basis by which a suit arises and must be disposed

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of.”).

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Plaintiffs argue that the complaint should be sealed because the fraud-related allegations in

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the complaint could harm the reputation and livelihood of Kraatz, a re-organization specialist who

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assists struggling companies and whose business involves reviewing the confidential information

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of clients during restructuring. Mot. at 4. Plaintiffs contend that allowing the complaint to remain

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public “would not only be an embarrassment to Mr. Kraatz but could be catastrophic as current

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and potential clients will distance themselves from Mr. Kraatz out of caution, if not a belief that

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Mr. Kraatz has ulterior motives.” Id. at 4-5. Similarly, Plaintiff Sjostrom’s declaration in support

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of the motion to seal states: “Due to the nature of the claims alleged in the Complaint, I believe

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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

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United States District Court
Northern District of California

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[Docket No. 10-1] at ¶ 5.
However the Ninth Circuit has made clear that “[t]he mere fact that the production of

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records may lead to a litigant’s embarrassment, incrimination, or exposure to further litigation will

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not, without more, compel the court to seal its records.” Kamakana, 447 F.3d at 1179. When

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sealing documents under the compelling reason standard, a “district court must base its decision

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on a compelling reason and articulate the factual basis for its ruling, without relying on hypothesis

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or conjecture.” Hagestad v. Tragesser, 49 F.3d 1430, 1434 (9th Cir. 1995). In the absence of

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specifically articulated reasons, “meaningful appellate review is impossible.” Id. at 1435.

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Although Plaintiffs nakedly assert that the “[c]omplaint has inadvertently become a vehicle for

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improper purposes that could promote a public scandal or circulate libelous statements,” they do

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not provide any factual basis supporting this claim. Mot. at 5.

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In short, Plaintiffs have failed to provide a compelling reason to seal the complaint

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sufficient to overcome the public’s interest in disclosure. Furthermore, Plaintiffs’ request to seal

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the entire complaint is not narrowly tailored and fails to comply with Civil Local Rule 79-5(b).

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Therefore, Plaintiffs’ motion to seal the complaint is denied.

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//

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//

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//
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III.

SETTLEMENT OF THE CASE
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

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dismissal has been filed in this case. Therefore, Plaintiffs shall file a status report or dismissal
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within 30 days from the date of this Order.
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IT IS SO ORDERED.
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Dated: July 21, 2016
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______________________________________
Donna M. Ryu
United States Magistrate Judge

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United States District Court
Northern District of California

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