Commercial Litigation and Arbitration

Inherent Power Sanctions —Party’s Unfounded Attack on Settlement Agreement, Like Unfounded Attack on Arbitration Award, Is Vexatious — Settlement Agreement Predicated on Confidentiality of Terms Justifies Sealing Order

Seals v. Herzing Inc., 2012 U.S. App. LEXIS 13390 (5th Cir. June 29, 2012):

A two-day arbitration hearing was scheduled. Seals proceeded pro se prior to the hearing, but he retained counsel for the hearing itself. On the hearing's second day, the parties agreed to settlement terms. The terms were read on the record at the arbitration hearing, and Seals was permitted to ask questions concerning them. After receiving clarification, Seals agreed that he was comfortable with the agreement. A Confidential Consent Award was then prepared, which reduced the terms of the agreement to writing, and it was signed by the parties, their attorneys, and the arbitrator. The Confidential Consent Award was then read on the record at the arbitration hearing, and Seals again stated that he was comfortable with the agreement.

Within days of signing the Confidential Consent Award, Seals filed a Motion and Order to Suppress Confidential Consent Award (Motion to Suppress) in the district court. He claimed that he had accepted Herzing's offer at the arbitration hearing only because his attorney had made a misrepresentation and had pressured him to do so. Seals attached a copy of the Confidential Consent Award to the motion. In response, Herzing filed a Motion to Enforce Settlement Agreement, to Deposit Settlement Funds into Registry of the Court and to Award Attorneys' Fees and Costs (Motion to Enforce), a Motion to Place Exhibits Under Seal (Motion to Seal), and its opposition to Seals's Motion to Suppress. Herzing also moved for expedited consideration of its Motion to Seal. Seals then filed a motion in opposition to Herzing's Motion to Enforce, a Motion and Order for Leave of Court to File Amendment to the Complaint (Motion to Amend), and a Motion in Opposition to the Defendant/Respondent's Motion for an Expedited Placement of Exhibits "A" and "B" Under Seal. Subsequently, Herzing filed its opposition to Seals's Motion to Amend.

The district court granted expedited review of Herzing's Motion to Seal. The court recognized Seals's motion opposing expedited review, but noted that it did not advance any argument concerning expediting review; instead, it seemed to address the merits of Herzing's Motion to Seal. Later, the court issued orders addressing the remaining motions. First, the court granted Herzing's Motion to Seal and ordered that the exhibits relating to the parties' confidential settlement agreement be placed under seal. Next, the court denied Seals's Motion to Suppress and granted Herzing's motion to enforce the settlement agreement on the grounds that: (1) "it [was] undisputed that Seals and Herzing entered into a valid written compromise," (2) the record did not support Seals's suggestion that his lawyer pressured him into settling his claims, and (3) "there [was] no evidence showing that the compromise [was] invalid." The court determined that the request to deposits funds into the court's registry was premature. Finally, the court "agree[d] that [Seals's] motion [was] unsupportable and that Herzing [was], therefore, entitled to a reasonable award of attorney's fees and costs associated with opposing [Seals's] motion to suppress and pursuing its own motion to enforce the settlement." The court denied Seals's Motion to Amend because "the settlement agreement [was] valid and enforceable," and "[a] valid compromise precludes the parties from litigating the matter that was compromised." ***

Next, we consider Seals's argument that the district court erred in granting Herzing's Motion to Seal. "[W]e review the district court's decision to seal the settlement agreement for abuse of discretion." Seals first argues that sealing his Exhibit 1 (Confidential Consent Award) and Herzing's Exhibits A (Confidential Consent Award) and B (arbitration transcript) was against public policy because "transparency is in order." "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." However, "the right to inspect and copy judicial records is not absolute," and "[e]very court has supervisory power over its own records and files." Here, paragraph six of the Confidential Consent Award states, "All parties to the litigation and arbitration and their attorneys agree to keep the amounts and terms of the settlement confidential. Claimant understands and agrees that this confidentiality and non-disclosure agreement was a material inducement for Herzing to enter into this Agreement, and that it has value to Herzing." In light of the parties' agreement to maintain confidentiality, the express statement that confidentiality was a material inducement for Herzing to settle, the fact that "public policy favors voluntary settlements,"7 and the limitation of the district court's order to these three exhibits, we conclude that the district court did not abuse its discretion in ordering these exhibits sealed. ***

Seals next challenges the district court's award of attorneys' fees and costs to Herzing, and Herzing defends the award by asserting that the district court acted in accordance with its inherent power. "We review a court's imposition of sanctions under its inherent power for abuse of discretion." Pursuant to its inherent power, "a court may assess attorney's fees when a party has 'acted in bad faith, vexatiously, wantonly, or for oppressive reasons.'" [Chambers v. NASCO, Inc., 501 U.S. 32, 45-46 (1991).] The district court awarded Herzing its attorneys' fees and costs associated with opposing Seals's Motion to Suppress and pursuing its motion to enforce the settlement agreement because Seals's Motion to Suppress was "unsupportable." In its order, the district court stated that "Seals' unsupported suggestion that his lawyer somehow forced him to settle his claims is not only unfounded in the record, it falls well short of establishing duress. And dangerously borders on frivolous." Seals has failed to demonstrate that the district court abused its discretion. Nothing in Seals's appellate brief or the record leads us to question the district court's conclusion that Seals's Motion to Suppress was without justification, and in the analogous context of an arbitral award (as opposed to a settlement agreement entered into in the course of an arbitration), we have held that a party's refusal to abide by the award "without justification" qualifies as vexatious behavior that can support the award of attorneys' fees by a federal court. [Specialty Healthcare Mgmt., Inc. v. St. Mary Parish Hosp., 220 F.3d 650, 658 (5th Cir. 2000) (citing Chambers, 501 U.S. at 45-46; Int'l Ass'n of Machinists & Aerospace Workers, Dist. 776 v. Tex. Steel Co., 639 F.2d 279, 283 (5th Cir. Unit A Mar. 1981)).]

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