In re J.T. Thorpe, Inc.; Thorpe Insulation Co., Debtors
J.T. Thorpe Settlement Trust; Thorpe Insulation Company Asbestos Settlement Trust; Charles B. Renfrew, Administrative Law Judge, Futures Representative, Appellees. Michael J. Mandelbrot; The Mandelbrot Law Firm, Appellants,
and Submitted February 17, 2017 Pasadena, California
from the United States District Court for the Central
District of California No. 2:14-cv-03883-VAP, Virginia A.
Phillips, Chief District Judge, Presiding
Van Ausdall (argued), San Francisco, California; Michael J.
Mandelbrot, The Mandelbrot Law Firm, Novato, California; for
S. Fergus (argued), Fergus Law Office, San Francisco,
California; Daniel J. Bussel, Thomas E. Patterson, and
Kathryn T. Zwicker, Klee Tuchin Bogdanoff & Stern LLP,
Los Angeles, California: for Appellees.
Before: Milan D. Smith, Jr. and John B. Owens, Circuit
Judges, and Edward R. Korman, [*] District Judge.
panel vacated the district court's affirmance of the
bankruptcy court's order enforcing a stipulated agreement
in adversary proceedings seeking to debar an attorney from
submitting claims to asbestos trusts, which are created
through the Chapter 11 bankruptcy proceedings of entities
exposed to significant asbestos liability.
attorney had repudiated the settlement, arguing that
California Business and Professions Code section 16600 and
California Rule of Professional Conduct 1-500 rendered the
settlement illegal because it restrained him from the
practice of law.
panel concluded that further proceedings in the district
court were warranted. It remanded for the district court to
decide whether federal or state law governed, including
whether the asbestos trusts waived the argument that federal
law governed, and to decide the impact, if any, of Golden
v. Cal. Emergency Physicians Med. Grp., 782 F.3d 1073
(9th Cir. 2015), which held that California law requires a
broad reading of section 16600.
District Judge Korman wrote that he would resolve the case on
the merits and would affirm because the debarment provision
was enforceable. Judge Korman wrote that the United States
had a strong interest in enforcing the debarment provision,
and, since it was reasonable, California had no interest in
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.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
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.
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 nonadversarial
procedures 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.
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.
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. Without addressing section 16600 or Rule
1-500, the bankruptcy judge granted the Trusts' motion to
enforce the settlement, and barred Mandelbrot from filing
claims with the Trusts.
district court 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, 782 F.3d 1083 (9th Cir. 2015), which our court
had decided a few months prior. The district court also did
not analyze whether federal law controlled the case, as
neither party had clearly argued its application.
Standard of Review
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), 834 F.3d 1003, 1007 (9th Cir. 2016). We review
for an abuse of discretion the enforcement of a settlement
agreement. Callie v. Near, 829 F.2d 888, 890 (9th
Cir. 1987); see also Golden, 782 F.3d at 1089.
Golden and Choice of Law
Golden, our court held that "[a]ssessing the
validity of a settlement agreement . . . is a question of
state contract law." 782 F.3d at 1087. Before the
district court in the instant case, the parties disagreed
whether Nevada or California law controlled the outcome of
the case. If that were the choice before us, then the
district court was undoubtedly correct to apply California
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 Craftsmen Local Union No.
20 v. Martin Jaska, Inc., 752 F.2d 1401, 1404 (9th Cir.
1985); see also Kopczynski v. The Jacqueline, 742
F.2d 555, 560 (9th Cir. 1984) (claims of error on appeal
"must be specific").
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, 365 F.3d 778, 781-82 (9th Cir. 2004) (holding
that applicability of Teague v. Lane, 489 U.S. 288
(1989), should have been "the first issue" raised
on appeal). Here, the district court easily could have
concluded that the Trusts never made a federal choice-of-law
argument. See Gilchrist v. Jim Slemons Imps., Inc.,
803 F.2d 1488, 1497 (9th Cir. 1986) (choice-of-law question
is usually "waived unless it is timely raised").
district court also did not apply Golden to 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. 782 F.3d at
1086. After thoroughly reviewing the statutory language and
relevant case law, the majority concluded that "[i]n
determining a contract's validity under section 16600 . .
. the court should direct its inquiry according to the actual
statutory language: whether the challenged provision
'restrains anyone from engaging in a lawful profession,
trade, or business of any kind.'" Id. at
1092 (internal citation and alteration omitted). The majority
in Golden interpreted California law to require a
broad reading of section 16600. Id. at 1090-92.
Because the district court in the Golden case did
not have the benefit of the majority opinion, our court
remanded the case with its "relatively undeveloped
record" so the district court could order additional
briefing or conduct further fact-finding. Id. at
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 case 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
KORMAN, District Judge, dissenting:
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 extensive 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 "engag[ing] in a
pattern and practice of filing unreliable evidence" in
support of his clients' claims. To protect their ...