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Should Parties Get Complaint Sealed Because Defendant “Had Returned All of the Misappropriated Funds”?

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From a joint motion to seal filed yesterday in Shapeshift US, Inc. v. Mukhiddinov (D. Colo.); for some news coverage of the original Complaint, see, for instance, this article in CoinDesk (Danny Nelson):

  1. District of Colorado Local Civil Rule 7.2(c) provides that a court may restrict from public access and inspection any document in a case in circumstances in which the public right of access is outweighed by the potential for serious injury if access is not restricted. The Supreme Court has recognized that although there is a strong interest in the public right of access to judicial documents, that right “is not absolute.” … “It is beyond question that this Court has discretionary power to control and seal, if necessary, records and files in its possession.” …
  2. In exercising discretion to control and seal records, this Court may “seal documents if the public’s right of access is outweighed by competing interests.” Here, the unique circumstances of this case and the significant interests of both parties outweigh the presumption of public access to the Complaint.
  3. The Complaint in this case, which was filed on August 26, 2020, alleges that Mukhiddinov misappropriated funds from his employer, Plaintiff ShapeShift, and that Plaintiff suffered losses in investigating the theft and taking remedial actions. As set forth in the Complaint at paragraphs 38-51, prior to the filing of the Complaint, Mr. Mukhiddinov had returned all of the misappropriated funds. The Complaint sought damages only for the costs of investigation and remediation.
  4. As soon as Mr. Mukhiddinov was served with the Complaint, he retained counsel and began settlement negotiations. On October 12, 2020, the parties reached a settlement agreement, and on October 19, 2020, the parties filed a Stipulated Dismissal with Prejudice.
  5. Mukhiddinov has a significant interest in protecting his personal and professional reputation from the allegations contained in the Complaint. Mr. Mukhiddinov is 25 years old and, despite being a highly qualified software engineer, he has already been terminated from new employment, specifically because the employer discovered the existence of the Complaint in this case.
  6. ShapeShift has a corresponding interest in Mr. Mukhiddinov obtaining employment, so that he will be in a position to make payments relating to the settlement agreement reached by the parties.
  7. This case is unique in that many of the damages arising from Mr. Mukhiddinov’s conduct had already been resolved prior to the Complaint even being filed. And, after Mr. Mukhiddinov received the Complaint in this case, he promptly retained counsel and reached a settlement, saving Plaintiff the cost of further litigation and conserving judicial resources. Effectively, this case was initiated and completed in just over a month. Further, both parties are in agreement that restricted access is appropriate.
  8. Under these circumstances, the common-law right to access to judicial records is outweighed by Mr. Mukhiddinov’s compelling interest in pursuing his career as a talented young engineer to enable him to make the payments required by the parties’ settlement agreement[.]
  9. C.Colo.LCivR 7.2(c) provides that the parties must demonstrate why no alternative to restriction will adequately protect the interest in question. To that end, Mr. Mukhiddinov proposes that if the Court does not believe restriction of the entire Complaint is appropriate, that it permit redaction of Mr. Mukhiddinov’s identifying information.
  10. In the alternative, Mr. Mukhiddinov proposes redacting the portions of the Complaint describing his misappropriation of funds, which were repaid prior to the filing of the Complaint. See McPherson v. Bachus & Schanker, 2011 WL 2415003 (D. Colo. June 10, 2011) (granting motion to seal complaint, based on allegations portraying the Defendants “in a negative light … [damaging] their professional reputations,” where the allegations were collateral to the claims at issue in the case). Here, the Complaint claims damages arising from discovery of the misappropriated funds and subsequent remediation, not from the misappropriation of the funds in the first instance. Thus, redacting the allegations relating to the misappropriation of the funds would be an alternative to sealing the Complaint in its entirety.

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Eugene Volokh

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