Robbins v. Tripp

Filing 10

OPINION AND ORDER: The Court AFFIRMS the Bankruptcy Court.It is so ORDERED. Signed by District Judge Henry C. Morgan, Jr and filed on 4/28/14. Copies distributed to all parties 4/29/14.(ldab, )

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA
Norfolk Division

JUDY A. ROBBINS,

Appellant,
v.

Civil Action No. 2:13cv446

JOHN W. TRIPP,

Appellee.

OPINION AND ORDER

This matter is before the Court on the Appeal of the United States Trustee ("UST"), Judy
A. Robbins, of an Order of the United States Bankruptcy Court for the Eastern District of

Virginia ("the Bankruptcy Court"), Doc. 1. The only issue on appeal is whether the Bankruptcy
Court erred in sealing a report ("the Report") filed by Appellant John W. Tripp, Esq.'s ("Tripp")

counsel. For the reasons state herein, the Court AFFIRMS the ruling of the Bankruptcy Court.
I.

BACKGROUND

The following facts are recounted from the Bankruptcy Court's June 24, 2013 Order.
Doc. 1-10. On June 27,2012, the Bankruptcy Court directed Appellee's counsel Paul K.

Campsen to file the Report at issue in this appeal. Id at 1. The Report was to detail problems
with the Appelle's practice before the Bankruptcy Court and to recommend solutions to these

problems.' Id The Bankruptcy Court instructed "that the Report bewritten candidly and not as
1The Report was ordered because of issues that arose during Mr. Tripp's representation of Clinton and Vanessia
Mack. Generally, the Report contains details regarding Mr. Tripp's legal practice before tlie Bankruptcy Court. Mr.
Tripp's counsel conducted interviews with current and former members of his staff. The Report recites counsel's
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an advocate for any party to this matter." W. Mr. Tripp filed a motion requesting the Report to
be filed under seal on July 18, 2012. Id at 2. The UST objected on July 20, 2012. Id A

hearing was held on July 25, 2012, and the Bankruptcy Court granted Mr. Tripp's motion until
February 6, 2013. Id On February 6, 2013, the Bankruptcy Court extended the seal until June
12, 2013, over the objection of the UST. ]d At the June 12, 2013 hearing, the Bankruptcy Court
entered a permanent order sealing the Report, again over the objection of the UST. Id

In granting the order, the Bankruptcy Court stated at the June 12 hearing:
These papers are to be open and readily accessible to the
public. At the same time, when I told you to file a report I said I
expect you to be brutally candid in that report, and I do not think it
is appropriate to hold you to the - not the legal standard but to the

brutally candid standard where you said or may have said things in
that report in a way that you wouldn't necessarily have said in a
report that was for publication as Mr. Tripp's lawyer.
And

I think that the more balanced and

reasonable

approach in this instance on these facts given my instructions to
you and your compliance with those instructions would be to have
this report remain under seal...
I don't think anything is going to be served by unsealing
this document after nine months, ten months, eleven months now,
and I certainly don't think anything's going to be served by

unsealing this document after this period of time since the report
addresses problems that by everyone's accounting no longer exist.
Hrg. Trscpt. at 23-24, In re Mack. No. 09-71540-SCS (Bankr. E.D. Va.), Doc. 173.

Appellant filed its Notice of Appeal on August 9, 2013. Doc. 1. Appellant's Brief was

filed on September3, 2013. Doc. 3. Appelle's Brief was filed on September 17,2013. Doc. 4.
Appellant's Reply Brief was filed on September 30, 2013. Doc. 5. A letter notifying the court of
supplemental authority was filed on January 2, 2014. Doc. 7.

findings from those interviews, and includes details concerning how Mr. Tripp supervised his staff, how Mr. Tripp
organized files, how Mr. Tripp communicated with his clients, staff turnover, and impressions of the UST regarding
Mr. Tripp's legal practice.

II.

LEGAL STANDARDS

A district court reviews the bankruptcy court's factual findings for clear error, while

questions of law are reviewed de novo. In re Merrv-Go-Round Enters.. Inc.. 400 F.3d 219, 224
(4th Cir. 2005). The question before the Court in this appeal, whether the Report was properly
sealed in accordance with 11 U.S.C. § 107, is a mixed question of law and fact. See In re Neal.
461 F.3d 1048, 1052 (8th Cir. 2006) (applying de novo review on the interpretation of the

statute, but reviewing for clear error whether the matter at issue falls within the statute); In re
Mitrano. 409 B.R. 812, 815 (E.D. Va. 2009) ("the reviewing court applies the clearly erroneous
standard to the factual portion of the inquiry and de novo review to the legal conclusions derived

from those facts."). The district court "may affirm, modify, or reverse a bankruptcy judge's
judgment, order or decree or remand with instructions for further proceedings." Fed. R. Bankr.
P. 8013.

III.

ANALYSIS

A. Common Law and 11 U.S.C. § 107

At common law, there is a strong presumption in favor of public access to judicial
records. See Nixon v. Warner Commc'ns. Inc.. 435 U.S. 589. 597 (1978'). However, this is not
without limits. Courts maintain "supervisory power over its own records and files, and access

has been denied where court files might have become a vehicle for improper purposes." Id at
598.

The Bankruptcy Code reflects this common law tradition. 11 U.S.C. § 107(a) provides
that:

Except as provided in subsection (b) and (c) of this section ... a
paper filed in a case under this title and the dockets of a

bankruptcy court are public records and open to examination by an
entity at reasonable times without charge.

At issue in this case are the exceptions under 11 U.S.C. § 107(b), which provides that:
On request of a party in interest, the bankruptcy court shall, and on
the bankruptcy court's own motion, the bankruptcy court may—(1)
protect an entity with respect to a trade secret or confidential
research, development, or commercial information; or (2) protect a
person with respect to scandalous or defamatory matter contained
in a paper filed in a case under this title.

No Fourth Circuit case has addressed the interpretation of this statute. The Bankruptcy
Court has held that to enter a protective order, there cannot be a less drastic remedy. In re Nunn.
49 B.R. 963,964 (Bankr. E.D. Va. 1985). In Nunn. the court restricted access to a customer list

that could be harmful to the movant. Id at 965. Likewise, a list of institutions holding defaulted
mortgages was deemed to be commercial information. In re EPIC Assoc. VU. 54 B.R. 445,449450 (Bankr. E.D. Va. 1985).

The First, Second, Eighth, and Ninth Circuits have adopted interpretations of various
parts of this statute. See In re Roman Catholic Archbishop of Portland in Oregon. 661 F.3d 417,
432-33 (9th Cir. 2011) (relying on the plain meaning of the term scandalous); In re Neal. 461

F.3d at 1054 (employing a test to determine if a matter is scandalous by asking "'whethera

reasonable person could alter their opinion of Defendants based on the statements therein, taking
those statements in the context in which they appear"') (quoting In re Phar Mor, Inc.. 191 B.R.
675, 679 (Bankr. N.D. Ohio 1995)); In re Gitto Global Corp.. 422 F.3d 1 (1st Cir. 2005)
(determining that § 107(b)(2) is implicated when "(1) the material at issue would alter his
reputation in the eyes of a reasonable person, and (2) that the material is untrue or that is

potentially untrue and irrelevant or included for an improper end"); In re Orion Pictures Corp..
21 F.3d 24, 27 (2nd Cir. 1994) (defining commercial information as "information which would

cause 'an unfair advantage to competitors by providing them information as to the commercial
operations of the debtor.'") (quoting In re Itel Corp.. 17 B.R. 942, 944 (B.A.P. 9th Cir. 1982).
The case before the Court is unique in that the Report does not directly relate to a
bankruptcy matter. Although filed as a document in a case, the Report contains information that
concerns the Appellee's representation of all his clients, not just the particular debtor in the case.

The Report was filed as part of the Bankruptcy Court's inherent power to regulate the members

of its bar. See, e^g., Chambers v. NASCO. Inc.. 501 U.S. 32, 43 (1991) (cautioning that the
inherent power to regulate members of its bar be used with caution); In re Palumbo Family Ltd.

Partnership. 182 B.R. 447,468 (Bankr. E.D. Va. 1995) (applying the standard for evaluating

attorney conduct set forth by the Supreme Court of Virginia). 11 U.S.C. § 107 was not designed
to address attorney discipline: it is best seen as furthering the common law spirit of providing
reasonable public access to court business. See In re EPIC Assocs. VU. 54 B.R. at 450 (looking
at the Nixon factors in addition to the § 107 factors). The Report was not a normal paper in a
case, but rather a starting point for the Bankruptcy Court to determine if a sanction would be

proper given the Appellee's conduct. The normal reasons supporting public access does not

apply in this situation; had the Report been filed as part of a Virginia State Bar investigation
rather than an investigation by the Bankruptcy Court, the Report would have remained
confidential. See Va. Sup. Ct. R. Part 6, § 4, f 13-30.

In this case, the Appellant raises three objections to the Bankruptcy Court's sealing of the
Report. First, the Appellant argues that the Bankruptcy Court applied the wrong standard. Doc.
3 at 15. Second, the Appellant argues that the Report did not contain information that is a trade

secret or confidential information. Doc. 3 at 18. Finally, the Appellant argues that the material
in the Report was not scandalous. Doc. 3 at 19. The Court addresses each contention in turn.

B. Improper standard

The Appellant's first argument is that the Bankruptcy Court applied an improper good
cause standard. Doc. 3 at 15. The Appellee's response was that the Bankruptcy Court applied
the § 107 standards. Doc. 4 at 17.

The order on appeal stated that the motion was originally granted in 2012 to seal the
Report for "good cause." Doc. 1-10 at 2. It made no mention of the § 107 factors. Id The
Bankruptcy Court referred to holding Mr. Tripp's counsel to a "brutally candid standard." Hrg.

Trscpt. at 24, In re Mack. The written order only referenced the reasons stated at the hearing on
June 12, 2013. Doc. 1-10 at 2. The parties briefed the § 107 issue before the Bankruptcy Court,
and thus the Court was aware of the standard it was applying. The Bankruptcy Court's ruling is
best interpreted as holding that there was no good reason presented as to why the information

contained in the Report should be disclosed. Thus, the Court finds that the proper standard was
applied.
C. Commercial information

While the Bankruptcy Court did not apply the wrong standard in ordering that the Report
remain sealed, this Court must still review the interpretation of the standard de novo. The
Appellant argues that the information contained in the Report does not meet the standard of

commercial information under the statute. Doc. 3 at 18. The Appellee argues that it does. Doc.
4 at 17.

In the context of § 107 of the Bankruptcy Code, the Second Circuit has defined

"commercial information" as "information which would cause 'an unfair advantage to
competitors by providing them information as to the commercial operations of the debtor.'" In re

Orion. 21 F.3d at 27 (quoting In re Itel Corp.. 17 B.R. at 944). The purpose behind the statute "is

to protect"business entities from disclosure of information that could reasonably be expected to
cause the entity commercial injury.'" In re Georgetown Steel Co.. 306 B.R. 542, 546 (Bankr.
D.S.C. 2004) (quoting In re Global Crossing. Ltd.. 295 B.R. 720, 725 (Bankr. S.D.N.Y. 2003)).

Information is not commercial simply because it relates to business affairs. In re Anthracite
Capital. Inc.. 492 B.R. 162, 178 (Bankr. S.D.N.Y. 2013). In this district, a customer list of a
creditor has been considered confidential commercial information. In re Nunn. 49 B.R. at 965.

In Orion, the Second Circuit found that the Bankruptcy Court properly sealed information

relating to a promotion agreement between the debtor and a third-party, as revealing the

information in the agreement would likely give the debtor's competitors an advantage. In re
Orion, 21 F.3d at 27-28. Here, Appellee focuses on the fact "the Report describes how Tripp
operates his private practice and interacts with his clients." Doc. 4 at 17.

Appellant cites In re Dreier LLP. 485 B.R. 821 (Bankr. S.D.N.Y. 2013), for the
proposition that how an entity organizes its operations is not confidential commercial

information. In Dreier. the court was confronting whether information concerning the
organizational structure of a hedge fund qualified under the commercial information exception.

Id at 823. While the court noted that it was private because it was not publically available, the

court rejected the contention becausethe fund "failed to show that its disclosure in a public filing
would place Westford at a competitive disadvantage." Id.

The cases support the Appellee's position that the Report contains confidential

commercial information. Just as the promotion agreement in Orion would put the debtor at a
disadvantage vis-a-vis its competitors, here the Report would have a similar effect. Unsealing
the Report would only put the Appellee in a worse competitive position in attracting new clients

and retaining current ones. The Report would serve no purpose for another law firm then simply
to be used to compete against the Appellee.
Additionally, Dreier is not persuasive in this case. There is a major distinction between

the organizational structure of a hedge fund and that of a law firm. A hedge fund's purpose is to
make a profit for its investors; how work is divided in such an organization is tangentially related
to the purpose of investing for profit. However, the purpose of a law firm is to represent clients
in the practice of law. How a law firm is organized directly relates to its product; the lawyer's

practice is his stock-in-trade. Its organizational structure is part of the product: whether the
lawyer, paralegal, or legal assistant will handle a particular assignment or communicate with a
client is part of the product. The product that the hedge fund offers is investments. Thus, the

lawyer would be placed at a competitive disadvantage by having how he organizes his practice
made public, while the hedge fund would not. Thus, the Report does contain confidential
commercial information.
D. Scandalous material

While the Report would properly be sealed under the confidential commercial
information exception, the Court also believes that it is protected under the scandalous and

defamatory exception as well. First, the Court notes that there is a circuit split on this issue.
Both the Appellee and Appellant argue that under either approach, their position is correct.
The Eighth Circuit, in determining whether a matter is scandalous, borrowed from the

First Circuit's approach in discussing the defamation prong. The First Circuit found that

"material that would cause a reasonable person to alter his opinion of an interested party triggers
the protections of § 107(b)(2) based on a showing that either (1) the material is untrue, or (2) the
material is potentially untrue and irrelevant or included within a bankruptcy filing for an

improperend." In re Gitto. 422 F.3d at 14. Applying this, the Eighth Circuit found that the
question for the court is "'whether a reasonable person could alter their opinion of Defendants
based on the statements therein, taking those statements in the context in which they appear"1 and
that the court should also consider the purpose for filing the material. In re Neal. 461 F.3d at

1054 (quoting In re Phar Mor, 191 B.R. at 679). Importantly, "injury to reputation is not enough
to deny public access to court documents." Id at 1054. Applying this test, the court did not find
a creditor list of attorneys who loaned a judge money scandalous, because it only became

scandalous when facts taken outside the context of the bankruptcy proceeding made it appear
scandalous.

Id

The Ninth Circuit rejected the Eighth Circuit's approach. The court rejected the filed for
improper purpose prong because it was derived from Nixon, and § 107 abrogated the common
law. In re Roman Catholic Archbishop. 661 F.3d at 432. Instead, because the statute does not

define scandalous, the Ninth Circuit turned to the plain meaning. Id. at 432. The court noted that
the Oxford English Dictionary defined scandalous in part as "bringing discredit on one's class or

position" or "grossly disgraceful." Id. (internal quotation marks and citation omitted). The

Ninth Circuit found that a matter is scandalous when it is "disgraceful, offensive, shameful, and
the like." Id To succeed, "the party seeking non-disclosure must establish only that the matter
is scandalous as that word is commonly understood." Id at 432-33. Using this definition, the
court found that allegations of sexually abusing children were scandalous. Id at 433.
The Court does not need to determine whether the Fourth Circuit would follow the Eighth
or Ninth Circuit, because using either test, the Report contains scandalous material. Using the

Eighth Circuit approach, the report is scandalous. First, a reasonable person could change their
2The judge took "loans" from attorneys who practiced before her. Inre Neal. 422 F.3d at 1050. She subsequently
filed for bankruptcy and listed the attorneys as creditors. Id. The press broke a story concerning the nature of the
loans, and thus the attorneys sought to seal the list. Jd.

opinion ofTripp based on the Report. While there was no allegation that the material in the

Report is untrue, the material contained within was not the subject of cross-examination in an

adversarial proceeding.3 The Bankruptcy Court itself directed the Report to befiled, so it was
not filed for an improper purpose.4 Doc. 10-1, at 1. There are no allegations that the Bankruptcy
Court acted improperly in ordering the Report prepared and filed. Moreover, in In re Neal. the
material only became scandalous when considering matters outside of the filing; a creditor list
itself would not show why a person should change their opinion of the creditor. In re Neal. 461

F.3d at 1054.

However, here, the Report itself contains material that could be used to alter a

reasonable person's opinion of the Appellee. Additionally, the Report is potentially untrue or
irrelevant. The Report had no effect on the underlying case before the Bankruptcy Court, and the
Report contains opinions that were not subject to cross-examination.
Likewise, under the Ninth Circuit approach, the Report can properly be considered

scandalous. The Report contains information regarding Mr. Tripp's bankruptcy practice. The
Bankruptcy Court found that unsealing the Report could harm his professional reputation. Given
that the Ninth Circuit found that the definition of scandalous included bringing discredit to one's
profession, there is no clear error in the Bankruptcy Court keeping the Report under seal.
E. No Less Drastic Remedy Exists

Under In re Nunn, the Bankruptcy Court should only seal a paper if no less drastic
remedy exists. In re Nunn. 49 B.R. at 964. Here, the Report if unsealed would serve no useful

purpose other than to embarrass the Appellee. This is not a typical bankruptcy case; it is more
akin to a disciplinary proceeding in which the Bankruptcy Court found that no sanction was

3TheReport does contain theopinions of many people, of which theopinions mayor may notbe factually truthful.
However, Appellee's counsel was instructed by the Bankruptcy Court to be candid, and as such, it is reasonable to

infer that the opinions were reported truthfully.

4Additionally, as discussed above, theBankruptcy Court has the power to regulate themembers of its bar.
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appropriate. The Appellee did not have an opportunity to rebut the allegations contained in the
Report. Furthermore, it would make public information that normally would be protected by the
attorney-client privilege. See United States v. Jones. 696 F.2d 1069, 1072 (4th Cir. 1982)
(setting for the test for the application of the privilege) (quoting United States v. United Shoe
Mach. Corn- 89 F. Supp. 357, 358-39 (D. Mass. 1950)). Appellee's counsel filed the Report to
protect his client's interests, and the Bankruptcy Court acted to ensure to the public that a
member of its bar was performing at an appropriate level. Thus, sealing the Report was a proper
action.

IV.

CONCLUSION

For the reasons stated above, the Court AFFIRMS the Bankruptcy Court.

The Clerk is REQUESTED to send a copy of this Order to all counsel of record.
It is so ORDERED

1st
Henry Coke Morgan, Jr.

Senior United States District Juc|ge

IIENR YCOKE MORGAN, JRWVWi
SENIOR UNITED STATES DISTRICT JUDGE

Norfolk, Virginia

Date: April

%$ 4 _, 2014

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