Lead Opinion
Dissent by Judge KORMAN
OPINION
Miсhael Mandelbrot appeals from the district court’s affirmance of an order that enforces a stipulated agreement between Mandelbrot and the J.T. Thorpe Settlement Trust. We have jurisdiction under 28 U.S.C. §§ 158 and 1334, and we vacate the district court’s order and remand the case for further proceedings.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Mandelbrot, an attorney, has represented asbestos claimants for many years. On behalf of his clients, he frequently submits claims to “asbestos trusts,” which are created through the Chapter 11 bankruptcy reorganization of entities exposed to significant asbestos liability. See generally Lloyd Dixon et al., Rand Corp., Asbestos Bankruptcy Trusts (2010), archived at https:// perma.cc/9AR8-289L. Subject to many requirements not relevant here, the Bankruptcy Code allows a Chapter 11 debtor to transfer its asbestos liabilities to a trust that it creates and funds (pursuant to state trust law) to pay asbestos claims. See 11 U.S.C. § 524(g)(2)(B)(i). The bankruptcy court retains jurisdiction to supervise the trust.
Trusts often compensate claimants through a streamlined procedure less clunky than traditional litigation. This system diverts fewer resources away from compensating claimants, which is generally a good thing. But because these nonadver-sarial procedurеs present the opportunity for untested chicanery, the trusts can take steps to debar a lawyer suspected of submitting bogus compensation claims.
Starting in 2011, the J.T. Thorpe, Thorpe Insulation, and Western Trusts (“Trusts”) began investigating whether Mandelbrot had submitted bogus claims. To make a long story short, by May 2013, the Trusts had concluded that Mandelbrot was “unreliable,” and that he had engaged in a pattern of submitting unreliable evidence. The Trusts eventually moved to debar Mandelbrot, and a January 2014 trial ensued.
After two days of trial testimony, the parties agreed to settle the case. Mandelbrot stipulated that the Trusts acted reasonably in (1) seeking to debar him, and (2) finding a pattern of him presenting unreliable evidence. He agreed to be permanently barred from submitting claims to the Trusts. In exchange, the Trusts agreed to (1) not seek damages from Mandelbrot, and (2) dismiss with prejudice their claims for equitable relief.
Just a few days later, Mandelbrot repudiated the settlement, and argued that California Business and Professions Code section 16600 and California Rule of Professional Conduct 1-500 rendered it illegal.
The district сourt affirmed that decision. It concluded that California law controls this issue, and that neither section 16600 nor Rule 1-500 prohibits the settlement agreement. In its written opinion, the district court did not discuss Golden v. California Emergency Physicians Medical Group,
II. DISCUSSION
A. Standard of Review
■ We review de novo a district court’s judgment on appeal from the bankruptcy court. Liquidating Tr. Comm. of the Del Biaggio Liquidating Tr. v. Freeman (In re Del Biaggio),
B. Golden and Choice of Law
In Golden, our court held that “[assessing the validity of a settlement agreement ... is a question of state contract law.”
However, the Trusts vaguely suggest in the last two pages of their brief to our court (with little analysis or reasoning) that federal “public policy” prohibits the application of California law. That is usually not enough to preserve an argument. “[W]e will not ordinarily consider matters on appeal that are not specifically and distinctly raised and argued in appellant’s opening brief.” Int’l Union of Bricklayers & Allied Craftsman Local Union No. 20 v. Martin Jaska, Inc.,
The district court never addressed whether federal law governs this case, and it is unclear whether the district court was even aware that the Trusts contended that federal law controlled its decision. This possible oversight is hardly the trial judge’s fault, as the briefs filed in the district court also failed to squarely argue that federal law controls. Fundamental questions of law should appear at the beginning of a brief, not thrown in at the end, and should be clearly made. See, e.g., Arredondo v. Ortiz,
The district court also did not apply Golden tо the settlement at issue (the bankruptcy court issued its order before our court decided Golden). In Golden, our court examined whether section 16600 prohibited a settlement agreement that constrained a physician’s freedom to practice medicine.
We believe the same approach is appropriate here. It may be, as the dissent suggests, that Golden has no application here because (1) federal law governs, or (2) the facts in this casе differ materially from those in Golden. But neither party adequately argued to the district court that federal law governs (and have hardly argued it to this court), and the district court never addressed the impact of Golden. Consistent with Golden, these calls are best for the district court to make in the first instance. Accordingly, we vacate and remand this case so that the district court can decide whether federal or state law governs (including whether the federal law argument has been waived), and what impact, if any, Golden has on this case.
VACATED and REMANDED.
Notes
. California Business and Professions Code section 16600 provides that "every contract by which anyone is restrained from engaging in a lawful profession ... is to that extent void.” California Rule of Professional Conduct 1-500(A) prohibits a California lawyer from being "a party to ... an agreement, whether in connection with the settlement of a lawsuit or otherwise, if the agreement restricts the right of a member to practice law[.]”
Dissenting Opinion
dissenting:
In order to manage a nationwide glut of asbestos claims against bankrupt entities, Congress has authorized the creation of special asbestos bankruptcy trusts to pay settlements while balancing the interests of present and future claimants. After an extensivе investigation, two asbestos trusts, each supervised by the Bankruptcy Court for the Central District of California—the J.T. Thorpe Settlement Trust and the Thorpe Insulation Company Asbestos Settlement Trust (the “Thorpe Trusts”)— accused appellant Michael Mandelbrot, a California lawyer, of “engaging] in a pattern and practice of filing unreliable evidence” in support of his clients’ claims. To protect their assets from Mandelbrot’s malfeasance, the trusts forbade him from filing any more claims, and asked the bankruptcy court to declare that decision reasonable.
At trial, after the Thorpe Trusts presented two full days of testimony against him, and with more yet to come, Mandelbrot agreed to a straightforward settlement: In exchange for an agreement not to sue for damages, he admitted that the Thorpe Trusts’ finding that he was unreliable and had engaged in a pattern of unreliable filings was a reasonable one, and agreed to be permanently barred from submitting claims to those trusts and two others—the Western Asbestos Settlement Trust and the Plant Asbestos Settlement Trust—both of which also owe their existence to the federal asbestos-trust mechanism.
Only two days after that agreement halted his trial, however, Mandelbrоt sought to back out of the deal. The bankruptcy court rejected Mandelbrot’s attempt to renege, the district court affirmed, and Mandelbrot now appeals. The question presented is whether we should refuse to enforce an attorney’s agreement not to practice before federally-supervised asbestos trusts because it purportedly violates California law. On the assumption that California law applies, the validity of the agreement turns on California Business and Professions Code § 16600, which provides that “every contract by which anyone is restrained from engaging in a lawful profession ... is to that extent void.” More specifically, because the settlement agreement arises out of Mandelbrot’s unethical behavior and bars him from submitting claims to only four asbestos trusts, the agreement’s validity turns on the effect of our construction of the breadth of § 16600 in Golden v. Cal. Emergency Physicians Med. Grp.,
The majority remands the case to the district court to consider that issue, one that was fully briefed here, because of the unfounded assumption that the district court did not consider Golden in its opinion upholding the settlement agreement. While California law does not apply here, for reasons developed below, the opinion of the district court and the chronology of the briefing there, which go without mention in the majority opinion, undermines the suggestion that “the district court never addressed the impact of Golden.” Specifically, the record shows that Golden was decided on April 8, 2015, when Mandelbrot’s appeal from the bankruptcy court was pending before the district court. On May 27, 2015, the Thorpe Trusts filed a Notice of Supplemental Authority (“NSA”), calling the district court’s attention to Golden. This submission, which included a copy of Golden, thoroughly argued that, “although the Golden decision does interpret section 16600, it does not lend any support for Mandelbrot’s appeal.” Subsequently, on June 9, 2015, the Thorpe Trusts filed another NSA advising the district court that the Ninth Circuit had summarily denied defendant’s petition for rehearing en banc and certification to the Supreme Court of California.
Mandelbrot did not contest the argument of the Thorpe Trusts that Golden did not lend any support for his then-pending appeal from the order of the bankruptcy court. Mandelbrot did not even file any submission in response, thus conceding the argument of the Thorpe Trusts that Golden did not affect the validity of the settlement agreement. Under these cirсumstances, the district court judge had no need to expressly address Golden in her exhaustive and thoughtful opinion. Indeed, the district judge said more than enough when she correctly wrote that Mandelbrot “cite[d] no case where a court has applied § 16600 to void a settlement in proceedings alleging submission of unreliable claim evidence.” In re: J.T. Thorpe, Inc. & Thorpe Insulation Co.,
Mandelbrot is not entitled to a second bite at the apple in the district court—a bite that will cause the trusts to expend funds otherwise dedicated to those suffering from asbestos exposure and those who may suffer from it in the future.. Nor does the remand here find any support from the fact that the panel in Golden “remanded the case with its ‘relatively undeveloped record’ so the district court could order additional briefing or conduct further fact-finding.” Unlike the district court record in Golden, the record here is fully developed and includes findings of fact by the district court, another fact that the majority opinion ignores.
This is not a close case on the merits. There is no reason for the majority to kick the can down the road, not only with respect to the applicability of Golden but also to the issue whether the Thorpe Trusts “adequately аrgued to the district court that federal law governs.” The record shows that even Mandelbrot understood the contention of the Thorpe Trusts “that Nevada or federal law should ... be applied.” While the Thorpe Trusts’s argument, which was made in identical language here and in the district court, could have been better, we have refused to find an argument waived even where we agreed with the appellee that the appellant’s argument was “indeed minimal.” California State Legislative Bd. v. Mineta,
“At a time where the resources of ... this Circuit especially, are strained to the breaking point,” Doi v. Halekulani Corp.,
BACKGROUND
A. Asbestos Bankruptcy Trusts & Debarment
The appellees in this case—the J.T. Thorpe Settlement Trust, and the Thorpe Insulation Company Asbestos Settlement Trust—are asbestos bankruptcy trusts (just “asbestos trusts” from here on out). The third appellee, Charles Renfrew, is the “futures representative” of the two appellee trusts, a fiduciary charged with representing the interests of future claimants. He has joined without reservation in the briefs submitted by the trusts.
Asbestos trusts are created through the Chapter 11 reorganization of entities exposed to significant asbestos liability. See generally Lloyd Dixon et al., RAND Corp., Asbestos Bankruptcy Trusts (2010), archived at https://perma.ee/9AR8-289L. Subject to many requirements not relevant here, section 524(g) of the Bankruptcy Code allows a Chapter 11 debtor to transfеr its asbestos liabilities to a trust that it creates and funds for the purpose of paying asbestos claims. See 11 U.S.C. § 524(g)(2)(B)(i). Although asbestos trusts arise in the course of federal bankruptcy proceedings, they are formally created under state trust law. The J.T. Thorpe and Thorpe Insulation plans of reorganization followed the standard practice of the bankruptcy court retaining jurisdiction to supervise the administration of the trust.
This case starts with the Thorpe Trusts’ barring Mandelbrot from presenting evidence on behalf of his clients, a remedy—for the sake of convenience, I call it “debarment”—that helps asbestos trusts protect themselves from paying out on bad claims. The Thorpe Trusts, like most asbestos trusts, process claims primarily through relatively informal, non-adversarial procedures. See generally U.S. Government Accountability Office, Asbestos Injury Compensation: The Role and Administration of Asbestos Trusts 17-23 (2011), archived at https://perma.ee/449K-TWPT. As the Case Valuation Matrix for each of the Thorpe Trusts explains, claimants must submit evidence that is “reliable and credible,” but the trusts will “not strictly apply rules of evidence.” Rather than subject claimants and the trusts to the expense of adversarial litigation, the Thorpe Trusts’ procedures provide for claimants to submit evidence and for the relevant trust to evaluate it. To the extent the claimant shows exposure to the debt- or’s asbestos and compensable harm, the trust offers a settlement. A claimant may reject the offer and start adversarial proceedings, but only after the ordinary claims process runs its course.
As the Thorpe Trusts explain, these streamlined procedures were selected because, being relatively less costly than adversarial ones, they divert fewer resources away from compensating claimants. But administrative convenience has a price: the trusts risk paying out on unfounded or even fraudulent claims that adversarial proceedings would have weeded out. To help manage that risk, the Thorpe Trusts’ Trust Distribution Procedures (“TDPs”) expressly authorize a variety of remedies in cases where a trust finds that unreliable or fraudulent evidence has been submitted on a claimant’s behalf.
Debarment is one such remedy. It is authorized, in identical terms, by language located at section 5.7(a) of both the J.T, Thorpe and Thorpe Insulation TDPs, providing in relevant part that:
“In the event that the Trust reasonably determines that any unreliable individual or entity has engaged in a pattern or practice of providing unreliable medical or other evidence to the Trust, it may decline to accept additional evidence from such provider in the future. Further, in the event that an audit reveals that fraudulent information has been provided to the Trust, the Trust may penalize any responsible ... claimant’s attorney by ... means including, but not limited to, requiring the ... attorney submitting the fraudulent information to pay the costs associated with the audit ..., raising the level of scrutiny of additional information submitted ..., refusing to accept additional evidence from the [attorney], seeking the prosecution of the ... attorney for presenting a fraudulent claim in violation of 18 U.S.C. § 152 [prohibiting fraud committed in relation to bankruptcy proceedings], and seeking Rule 11 sanctions.”
Debarment is non-judicial: It can be imposed by the trust itself, on its own authority, without any prior judicial review, so long as the trust “reasonably” makes the predicate findings. Nevertheless, the reference to the possibility of federal criminal prosecution and Rule 11 sanctions underscores the fact that the submission of claims to asbestos trusts, from which Mandelbrot has been debarred, is part of the practice of law in the bankruptcy court.
B. Factual Background & Proceedings Below
For over 20 years, Mandelbrot has represented asbestos claimants before trusts created in the course of federal Chapter 11 proceedings. As of 2013, he had submitted more than 13,000 claims to asbestos trusts nationwide. In the fall of 2011, the Thorpe Trusts—along with another, the Western Asbestos Settlement Trust—began investigating some of those claims.
Each of the Thorpe Trusts, as well as the Western Trust, are distinct entities. To reduce overhead, however, the trusts share certain administrative resources—both of the Thorpe Trusts have contracted out their claims administration function to the Western Trust. In other words, the trusts maintain separate pools of money for compensation, but share a facility for administering claims against those funds. Claims are asserted against individual trusts, and then—for administrative purposes only— processed by the Western Trust’s staff. Debarring Mandelbrot from the Thorpe Trusts means that he cannot file claims for compensation out of Thorpe Trust funds, but relieves the Western Trust of the administrative burdens associated with processing those claims.
The three trusts essentially undertook a single joint investigation, which concluded, in May of 2013, with a letter to Mandelbrot finding that he was “unreliable,” and that, with respеct to the Thorpe Trusts, he had engaged in a pattern of submitting unreliable evidence. The trusts also noted the existence of “substantial information to support a conclusion” that Mandelbrot had intentionally falsified evidence, but did not actually “make such a determination.”
As a result of their findings, the Thorpe Trusts (but not the Western Trust) debarred Mandelbrot. They determined that they would “accept no further evidence or claims from [him],” but offered to suspend that bar if Mandelbrot submitted his clients’ claims to extra scrutiny during a two-year probationary period. Mandelbrot did not take them up on their offer, and in August of 2013, the Thorpe Trusts jointly moved- the bankruptcy court for instructions (essentially a declaratory judgment) that their decision to debar Mandelbrot was “authorized under the TDPs of each Trust, and reasonable in light of the Trusts’ audit and investigative findings.”
Mandelbrot opposed the motion, and the parties convened for trial in January of 2014. After the trusts had put on two full days of testimony, the parties reached an agreement to settle the case. As part of the settlement, Mandelbrot made a detailed series of stipulations in open court. First, he stipulated that the Thorpe Trusts had acted reasonably in debarring him, in light of their investigativе findings. Second, Mandelbrot agreed that all of the post-investigation conclusions of the Thorpe Trusts and the Western Trust, as communicated to him in the May 2013 letter, were reasonable in light of the evidence that the investigation had collected. That stipulation expressly included Mandelbrot’s agreement that the Thorpe Trusts had reasonably found the factual predicates for debarring him—that he is unreliable and had “engaged in a pattern and practice of filing unreliable evidence.” Third and finally, Mandelbrot stipulated to be bound by a permanent bar on submitting claims to four separate asbestos trusts: the two Thorpe Trusts, the Western Trust, and a fourth—the Plant Asbestos Settlement Trust.
' While the latter two trusts were not parties to the underlying litigation, they were parties to the stipulated agreement. More significantly, they were hardly strangers to the risks posed by Mandelbrot’s conduct: The Western Trust found that it was the victim of Mandelbrot’s submission of unreliable evidence. Although it did not find that Mandelbrot’s claims “clearly reflected] a pattern or practice of unreliability,” it intended (prior to the settlement) to “continue to closely monitor the evidentiary submissions of Mandelbrot.” Letter of Managing Trustee Stephen M. Snyder, on behalf of thе Thorpe and Western Trusts, to Michael Mandelbrot (May 24, 2013), at 3 n.4 (available at Case No. 2:12-ap-02182, Dkt. No. 132 Ex. A, (Bankr. C.D. Cal.)).The Plant Trust was not yet accepting claims at the time the other three trusts investigated Mandelbrot, although it, the Thorpe Trusts, and the Western Trust had the same. Trustees, the same Futures Representative, and significantly overlapping membership between their Trust Advisory Committees.
In exchange for Mandelbrot’s agreement to be debarred, the Thorpe Trusts and the Western Trust agreed that they would not seek to recover any money from Mandelbrot.
Mandelbrot did not hold up his end of the deal—he repudiated the settlеment within days. The Thorpe Trusts filed a motion to enforce the agreement, which Mandelbrot opposed on the grounds that his agreement not to practice before the four trusts (the “debarment provision”) was illegal under California Business and Professions Code § 16600—which provides that “every contract by which anyone is restrained from engaging in a lawful profession ... is to that extent void”—and California Rule of Professional Conduct 1-500—which prohibits a California lawyer from being “a party to ... an agreement, whether in connection with the settlement of a lawsuit or otherwise, if the agreement restricts the right ... to practice law.”
The bankruptcy judge granted the Thorpe Trusts’ motion to enforce the settlement, and entered an order permanently barring Mandelbrot from filing claims with the Thorpe Trusts, the Western Trust, or the Plant Trust. The bankruptcy judge said that she had found the Thorpe Trusts’ conclusion that Mandelbrot had submitted unreliable claims to be reasonable “in response to the parties’ joint request,” but “would have found” the same “based on the evidence submitted” at trial. The judge then went on to hold that the debarment provision did not prohibit Mandelbrot from practicing law, only from practicing before trusts that had justifiably deemed him untrustwоrthy, and that he did not “have a license to engage in improper conduct or fraudulent behavior.”
Mandelbrot appealed, and the district judge affirmed in a written order. See In re J.T. Thorpe, Inc. & Thorpe Insulation Co.,
The district judge likewise found that refusing to enforce the debarment provision would not advance the policies underlying California Rule of Professional Conduct 1-500. In the district judge’s opinion, “[t]he [debarment provision] does not deny the public access to a lawyer who prevailed against the defendant in a prior action. Instead, it protects the public from one who submitted unreliable evidence that led to further scrutiny, audits, and expense. [There is] no basis for applying Rule 1-500 to bar [asbestos] trusts from stipulating to the imposition of the remedies authorized by their TDPs to safeguard claimants from an attorney that the trusts find to be unreliable, as opposed to forcing the trusts to litigate the matter in the face of powerful evidence to its obvious conclusion.” Id. at *6. Mandelbrot filed a timely notice of appeal from the district court’s decision.
DISCUSSION
A district court’s judgment on appeal from the bankruptcy court is reviewed de novo—we stand in the shoes of the district court, and as a practical matter review the bankruptcy court’s judgment. Liquidating Trust Committee of the Del Biaggio Liquidating Trust v. Freeman (In re Del Biaggio),
Mandelbrot argues that California law applies because the agreement was made in, and will largely be рerformed in, California. California law embodies a strong public policy against restricting professional practice, and Mandelbrot argues that under California Business & Professions Code § 16600, as well as California Rule of Professional Conduct 1-500, the settlement agreement is void. The Thorpe Trusts contend that the issue is governed by either Nevada law—because they are domiciled in that state and constituted under its law of trusts—or federal law—because the trusts were brought forth and continue to operate pursuant to a federally-supervised plan of reorganization. The trusts’ ultimate position, however, is that Mandelbrot’s agreement to be debarred is enforceable regardless of which law applies. I agree that the debarment provision is enforceable. There is a significant federal interest in its enforceability as a means to protect both the assets of congressionally-author-ized asbestos trusts, and the integrity of bankruptcy court proceedings. Moreover, I am not persuaded that, even in their own courts, either California or Nevada would refuse to enforce the debarment provision. Indeed, I see no interest that either state could conceivably have in doing so.
I. Background Principles
Courts often apply state law to resolve cases touching federal interests. In fact, in this context we begin with a default presumption that “the interstices of federal remedial schemes” like the asbestos-trust mechanism should be filled in with incorporated state-law rules of decision. See Kamen v. Kemper Fin. Servs., Inc.,
This general approach is equally applicable in the context of settlement agreements. We have held that settlement agreements are “[t]ypically ... governed by” state law. Golden v. Cal. Emergency Physicians Med. Grp.,
II. Practice Before Asbestos Trusts is an Area of Unique Federal Interest
The United States has a compelling interest in enforcing the debarment provision, because refusing to do so would affect the intended function of entities that Congress has designated to play a starring role in carrying out federal policy. The Supreme Court has long held that certain fields of activity, while not totally beyond the reach of state law, involve “uniquely federal interests,” Boyle v. United Techs. Corp.,
Bankruptcy is undoubtedly such an area. “The Constitution grants Congress exclusive power to regulate bankruptcy,” Kalb v. Feuerstein,
It is obvious on the face of their authorizing statute—11 U.S.C. § 524(g)—that one of Congress’s primary designs in sanctioning the operation of asbestos trusts was to ensure that funds allocated to pay asbestos claimants would be managed so as to leave each trust “in a financial position to pay ... present claims and future demands ... in substantially the same manner” as it waited decades for the last of its potential beneficiaries to wait out their lives and latency periods. 11 U.S.C. § 524(g)(2)(B)(ii)(V), In the same vein, Congress required that for the trust arrangement to bind future claimants at all, the bankruptcy court must determine that doing so would be “fair and equitable” to that class in light of the benefits to the debtor. Id. § 524(g)(4)(B)(ii).
The design of the trust system to protect future claimants was a deliberate one that, as the Third Circuit has explained, may have been in some respects constitutionally mandatory. “By enacting § 524(g), Congress took account of the due process implications of discharging future claims of individuals whose injuries were not manifest at the time of the bankruptcy petition .... Many of the requirements in § 524(g) are specifically tailored to protect the due process rights of future claimants.” Jeld-Wen,
Summed up, federal law in this area expresses a clear policy—asbestos trusts exist to protect future claimants, and each trust must be structured so they are duty-bound to conserve their assets on behalf of those unknown beneficiaries. The federal interest in the viability of that mechanism is significant. As the three trusts warned Mandelbrot, fraud in connection with federal bankruptcy proceedings is a federal crime, see 18 U.S.C. § 152, a penalty “enacted to serve important interests of government, not merely to protect individuals who might be harmed by the prohibited conduct.” Stegeman v. United States,
To hold otherwise would not only threaten the interests inherent in the § 524(g) trust mechanism, but would flatly overrule Winterrowd v. American General Annuity Insurance Co.,
Winterrowd rejected that argument. As the majority opinion in that case held:
“Admissions rules and procedure for federal court are independent of those that govern admission to practice in state courts.’ In re Poole,222 F.3d 618 , 620-22 (9th Cir. 2000) (‘[A]s nearly a century of Supreme Court precedent makes clear, practice before federal courts is not governed by state-court rules.’); see also Birbrower,17 Cal. 4th at 130 [70 Cal.Rptr.2d 304 ,949 P.2d 1 ] (‘The [State Bar] Act does not regulate practice before United States courts.’). This is true even “when admission to a federal court is predicate'd upon admission to the bar of the state court of last resort. In re Poole,222 F.3d at 620 .... Since all litigation in this case took place in federal court, Birbrower is inapposite. The district court ‘inappropriately] reli[ed] on state authority to impose federal discipline’.... In re Poole,222 F.3d at 622 .”
Winterrowd,
Asbestos trusts’ power to set and enforce ethical standards for the lawyers who practice before them implicate that principle in two important ways. First and most obviously, every asbestos trust is created by order of a federal court in the course of federal bankruptcy proceedings, and acts—for every practical purpose—as an arm of that court, allocating money out of a limited compensation fund according to parameters laid down by court order. In that sense, asbestos trusts function much as special masters sometimes do in other kinds of mass tort proceedings. See, e.g., In re Holocaust Victim Assets Litigation,
To file a claim with an asbestos trust, then, is functionally to participate in a federal judicial proceeding, regulated by the trust’s court-approved TDPs, by Rule 11, by the threat of criminal sanction under 18 U.S.C. § 152, and—where necessary—by “the inherent power of the federal court[ ] ... to discipline attorneys who appear bеfore it.” See Chambers v. NASCO, Inc.,
Moreover, even if there were no direct relationship between asbestos trusts and the federal judiciary, the same basic principle would control. Asbestos' trusts act as adjudicators carrying out federal policy, and the privilege of practice before federal tribunals, including nonjudieial ones, has always been subject to exclusive federal control. “A State may not enforce licensing requirements which, though valid in the absenсe of federal regulation, give the State[ ] ... a. virtual power of review over [a federal agency’s] determination that a person ... is qualified ... to perform certain functions.” Sperry v. Florida ex rel. Florida Bar,
In determining the scope of asbestos trusts’ protection from state interference, we look to that long afforded national banks. “Federally chartered banks are subject to state laws of general application in their daily business” only “to the extent such laws do not conflict with the ... purposes of the [National Bank Act].” Watters v. Wachovia Bank, N.A.,
III. California Has No Interest in Refusing to Enforce the Debarment Provision
Evеn if California had some power to act here, it would still have no genuine interest in invalidating Mandelbrot’s agreement to be debarred. Indeed, it is hardly clear that California law would actually do so. Mandelbrot argues that California’s interest in applying its law to this case arises out of California Business & Professions Code § 16600 and California Rule of Professional Conduct 1-500. The parties address the two separately, but they should be addressed together because the Rules of Professional Conduct necessarily affect how § 16600, which applies in many contexts, speaks to the legal profession in particular. I begin with a brief overview of those provisions.
Section 16600 of California’s Business & Professions Code provides that, except for a handful of narrow exceptions not applicable here, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The California courts have spoken clearly about the policies underlying § 16600—the point of the statute is to “favor ,.. open competition and employee mobility.” Edwards v. Arthur Andersen LLP, 44 Cal. 4th. 937, 946,
It is useful to begin the discussion with Rule 1-500, because it addresses the specific issue presented here, and because it provides useful guidance on the manner in which § 16600 should be applied in the context of an agreement limiting the practice of law. California does not apply Rule 1-500 inflexibly—it does so in balance with the practical necessities of the legal system and the other policies advanced by the Rules of Professional Conduct. In that vein, it recognizes that the “theoretical freedom” of each lawyer to choose their own clients, and each client to choose their own lawyer, is “actually circumscribed,” and has decisively rejected the rule that “all agreements restricting” a lawyer’s рractice are prohibited. Howard v. Babcock,
Some of the interests relevant here are manifest in the Rules of Professional Conduct themselves. The Rules are not a mere code of competition: They are intended to “protect the public and to promote respect and confidence in the legal profession,” Cal. Rules of Profl Conduct 1-100, and embody a strong policy of attorney integrity in dealing with courts and other adjudicators. The Rules require that a California lawyer, “in presenting a matter to a tribunal, ... [sjhall employ ... such means only as are consistent with truth; [and s]hall not seek to mislead the [tribunal] by an artifice or false statement of fact.” Id. Rule 5-200(A)-(B). California’s strong public policy favoring settlement should also be taken into account. California generally encourages settlements, see In re Cipro Cases I & II,
There are strong reasons to be confident that a California court would find the state’s interest in applying Rule 1-500 much diminished under the circumstances of this case, in which Mandelbrot has effectively admitted to misleading asbestos trusts by submitting unreliable evidence in support of his clients’ claims. In entering into the settlement agreement, Mandelbrot stipulated that the evidence presented in the trusts’ May 2013 letter supported a “reasonable” determination that he 1) was an unreliable source of evidence, and 2) had “engaged in a pattern and practice of filing unreliable evidence” with the three trusts. So as the district judge cogently stated, the debarment provision “does not deny the public access to a lawyer who prevailed against the [trusts] in a prior action. Instead, it protects the public”—as well as the trusts and their beneficiaries— “from one who submitted unreliable evidence,” In re J.T. Thorpe Inc. & Thorpe Insulation Co.,
Moreover, whatever limits Rule 1-500 puts on settlement in other contexts have little relevance here. In the context of settlement agreements restricting the practice of law, the primary concern is that they may limit the public’s access to counsel, distort negotiations with considerations unrelated to the client, and create a conflict between the interests of the current client in a speedy settlement and future clients in capable counsel. See ABA Comm. On Ethics and Professional Responsibility, Formal Op. 93-371 (1993). To the extent those interests apply here at all, they do so with diminished force: Mandelbrot is not here on behalf of a client, so there is no other subject of settlement negotiations to distract from, and no conflict with a present client’s interests. And the fact that Mandelbrot did not enter into the debarment provision as part of settling a client matter means that arguably' the most important interest animating Rule 1-500 has no relevance here. Indeed, the equivalent entry in the American Bar Association’s model ethics rules—commentary on which California courts have consulted in applying the California rules, Howard,
Section 16600’s general regulation of professional restraints does not change the result under Rule 1-500 standing alone. To begin with, there is good reason to conclude that the California Supreme Court would agree that it makes little sense to read § 16600, a general regulation of professional restraints, as enacting a stricter rule than Rule 1-500, which takes into account the particular concerns of the legal profession. See generally Antonin Scalia & Bryan A. Garner, The Interpretation of Legal Texts 183-88 (1st ed. 2012). Indeed, even outside the context of legal practice, § 16600 has never been held to enact an absolute prohibition on professional restraints. It is true that California has a fundamentаl public policy against anticom-petitive agreements. See Application Grp., Inc. v. Hunter Grp., Inc.,
Mandelbrot’s per se position relies heavily on the California Supreme Court’s recent decision in Edwards v. Arthur Andersen LLP. Edwards concerned a contract that barred a departing accountant, for a limited time, from soliciting or working for his former firm’s clients.
Edwards, however, did not abrogate decades of California law applying a rule of reason to agreements that restrain professional practice without anticompetitive purpose or effect. Edwards itself framed its conclusion narrowly in terms of “non-competition agreements,” Id., distinguished two potentially inconsistent cases on the grounds that they did not “provide! ] any guidance on the issue of non-competition agreements,” id. at 950,
The debarment provision—which bars one lawyer from filing claims with four trusts out of the dozens currently in operation—is not a noncompetition agreement, and there is no evidence that it was negotiated “for an anticompetitive purpose.” See FLIR Sys., Inc. v. Parrish,
Nor does our recent decision in Golden v. California Emergency Physicians Medical Group,
We reversed, explaining that, in addition to covenants not to compete, § 16600 also applies to “other contractual restraints on professional practice.” Thе most important circumstance in Mandelbrot’s case, however, was wholly absent from Golden: Dr. Golden’s basic fitness to practice medicine was not called into question. But here, the debarment provision rests on the fact that Mandelbrot has effectively admitted to conduct that casts serious doubt on his fitness to practice law. The debarment provision is narrowly tailored to remedy that professional misconduct, which took place at the expense of a federally-supervised asbestos trust. And as shown above, such an agreement is consistent with the California courts’ construction of Rule 1-500, and the California Supreme Court’s authorization of resignations from the bar in lieu of discipline—agreements to settle claims of attorney misconduct that restrict the practice of law in the most draconian fashion.
This consideration aside, Golden does not say that all restraints on professional practice are prohibited. Instead it holds no more than that such restraints must be “of a substantial character” in order to fall within the purview of § 16600. Golden did not, however, reach the question of whether the no-employment provision in that case was a “substantial” restraint. Rather, we remаnded to the district court to “determine [that] in the first instance” because the record was undeveloped. Id. at 1092-93.
In sum, the United States has a strong interest in enforcing the debarment provision, and since it is reasonable, California has no interest in invalidating it. Mandelbrot has identified no other deficiency in the lower courts’ judgments enforcing the debarment provision. Those judgments should be affirmed. . .
, See J.T. Thorpe Settlement. Trust, Trust Representatives, archived at https://perma.cc/FFH 2-HGSC; Thorpe Insulation Settlement Trust, Trust Representatives, archived at https:// perma.cc/6273-Q7HM; Western Asbestos Settlement Trust, Trust Representatives, archived at https://perma.cc/D86F-LRPQ; Plant Asbestos Settlement Trust, Trust Representatives, archived at https://perma.cc/4344-EW96.
. The Plant Trust did not make such аn agreement, because when the parties entered into the settlement in early 2014, the Plant Trust had not begun accepting claims.
. Consider the Second Restatement of Conflict of Laws, which we look to in federal-question cases as a source of general choice-of-law principles to the extent we conclude they are persuasive. See, e.g., PNC Bank v. Sterba (In re Sterba),
. The Holocaust Victim Assets Litigation itself involved an even more pertinent example of a claims-resolution mechanism that, while federally supervised, was technically constituted under a different body of law. That case involved claims to recover assets that, at the time of the Holocaust, were owned by victims of Nazi persecution and deposited with Swiss banks. As part of a settlement agreement, the Swiss banking industry and the Swiss government created a body called the Claims Resolution Tribunal (CRT) to arbitrate claims on those assets. With respect to its federal raison d'etre—resolving claims that were the subject of litigation in federal court—the CRT functioned according to criteria approved by the district judge, and operated under his supervision. See In re Holocaust Victim Assets Litigation,
. See Muggill v. Reuben H. Donnelley Corp.,
. Compare the post-Edwards decision in USSPOSCO Industries v. Case,
. On remand from our decision in Golden, the district court held that the no-employment provision was not a substantial restraint.
. I would reach the same result under Nevada law, since the preceding analysis is perfectly applicable to that state as well as California. Briefly: Nevada has no statutory equivalent to Business & Professions Code § 16600, and its common law of restraints of trade is firmly grounded in a rule of reason. See, e.g., Golden Road Motor Inn, Inc. v. Islam,