Wednesday, December 28, 2011

Third Circuit Upholds Professional Responsibility in Age of Technology

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A landmark case involving ethics and technology has reached its conclusion with an opinion from the Third Circuit Court of Appeals that an attorney cannot blindly rely on information provided by an automated system, especially when the accuracy of that information has been called into question. In re Taylor, 655 F.3d 274 (3rd Cir. 2011). I have previously written about the bankruptcy court decision here and the district court opinion here. The Court of Appeals set the tone for the opinion with its opening statement:


This case is an unfortunate example of the ways in which overreliance on computerized processes in a high-volume practice, as well as a failure on the part of clients and lawyers alike to take responsibility for accurate knowledge of a case, can lead to attorney misconduct before a court.

In re Taylor, at 277.

What Happened

The Taylor case illustrates the problems that can arise when a consumer debtor finds himself in a battle with a faceless computer. The Taylors and HSBC had a dispute over whether flood insurance was required on the Taylors’ property. As a result, the Taylors sent in their payments minus the disputed amount. HSBC placed the partial payments into suspense until a full payment was received an imposed late fees on the payment.

When the Taylors filed for chapter 13 bankruptcy, HSBC sent a referral to the Udren Law Firm to file a motion for relief from automatic stay. The referral was processed through the NewTrak technology system. The Court of Appeals described the process as follows:

HSBC does not deign to communicate directly with the firms it employs in its high-volume foreclosure work; rather, it uses a computerized system called NewTrak (provided by a third party, LPS) to assign individual firms discrete assignments and provide the limited data the system deems relevant to each assignment. The firms are selected and the instructions generated without any direct human involvement. The firms so chosen generally do not have the capacity to check the data (such as the amount of mortgage payment or time in arrears) provided to them by NewTrak and are not expected to communicate with other firms that may have done related work on the matter. Although it is technically possible for a firm hired through NewTrak to contact HSBC to discuss the matter on which it has been retained, it is clear from the record that this was discouraged and that some attorneys, including at least one Udren Firm attorney, did not believe it to be permitted.

In re Taylor, at 278-79.

A non-lawyer employee with the Udren Firm used the information provided by NewTrak to prepare the motion for relief from automatic stay. A managing attorney at the Udren Firm reviewed the motion and authorized it to be filed under her electronic signature. The motion recited that the Debtors had not made payments for three post-petition months but added that there was a suspense balance of $1,040. The motion asserted that there was a total arrearage balance of $4,367. The motion listed a different payment amount than the amount listed in the proof of claim filed by a different firm on behalf of HSBC. Finally, the motion asserted that the Debtors had no equity in their property.

The Debtors responded to the motion and attached copies of canceled checks payable to HSBC. The Debtors also objected to the proof of claim filed by HSBC. HSBC’s counsel responded to the claims objection asserting that all amounts in the proof of claim were accurate, even though they conflicted with the numbers contained in the motion for relief from stay.

The Court had this to say about the firm’s due diligence in filing the motion:

Doyle did nothing to verify the information in the motion for relief from stay besides check it against "screen prints" of the NewTrak information. She did not even access NewTrak herself. In effect, she simply proofread the document. It does not appear that NewTrak provided the Udren Firm with any information concerning the Taylors' equity in their home, so Doyle could not have verified her statement in the motion concerning the lack of equity in any way, even against a "screen print."

In re Taylor, at 279.

At the hearing, a young attorney from the Udren Firm acknowledged that the Debtors had made post-petition payments, but sought to proceed with the motion anyway because the Debtors had failed to respond to requests for admission.

The bankruptcy court denied the request to enter the RFAs as evidence, noting that the firm "closed their eyes to the fact that there was evidence that . . . conflicted with the very admissions that they asked me [to deem admitted]. They . . . had that evidence [that the assertions in its motion were not accurate] in [their] possession and [they] went ahead like [they] never saw it." (App. 108-109.) The court noted:

Maybe they have somebody there churning out these motions that doesn't talk to the people that--you know, you never see the records, do you? Somebody sends it to you that sent it from somebody else.

In re Taylor, at 281.

The Court directed the Udren Firm to obtain a payment history from HSBC so that the amounts owed could be determined. However, at a subsequent hearing, the young attorney informed the Court that he had submitted the request through NewTrak but had not received a reply. He also informed the Court that he was not allowed to communicate directly with his client. The understandably perturbed Court issued an order for the firm and three of its attorneys to appear and respond to the Court’s concerns about how the case had been handled.

After four hearings, the Court concluded that the young associate, the managing attorney who signed the pleadings, the head of the firm, the firm itself and HSBC had all violated Rule 9011. The Court imposed creative, but largely symbolic sanctions. As explained by the Court of Appeals:

Because of his inexperience, the court did not sanction Fitzgibbon. However, it required Doyle to take 3 CLE credits in professional responsibility; Udren himself to be trained in the use of NewTrak and to spend a day observing his employees handling NewTrak; and both Doyle and Udren to conduct a training session for the firm's relevant lawyers in the requirements of Rule 9011 and procedures for escalating inquiries on NewTrak. The court also required HSBC to send a copy of its opinion to all the law firms it uses in bankruptcy proceedings, along with a letter explaining that direct contact with HSBC concerning matters relating to HSBC's case was permissible.

In re Taylor at 281-82.

The sanctions were aimed more at shaming the firm than financially penalizing it. Ordering the head of the firm to learn how NewTrak worked sent a symbolic message that he was out of touch with how his own law firm worked. Requiring Doyle, the bankruptcy managing attorney, the obtain three hours of CLE in professional responsibility sent the message that she needed this education. Requiring Udren and Doyle to conduct a training session on the requirements of Rule 9011 and how NewTrak worked was intended to correct their behavior. Finally, the requirement that HSBC send a copy of the opinion to all of its attorneys was meant to remedy the perceived view that such contact was forbidden.

The District Court reversed all of the sanctions, even those against HSBC, which had not appealed. The District Court found that Debtor’s counsel was equally at fault, that the Bankruptcy Court seemed more interested in sending a message to the bar in general than addressing the failings of counsel in the specific case and that Udren could not be sanctioned under Rule 9011 because he had not signed any pleadings.

The U.S. Trustee appealed to the Third Circuit.

The Third Circuit Opinion

The Third Circuit affirmed the District Court’s ruling that Udren, as shareholder of the firm, could not be sanctioned since he did not sign any pleadings. However, it reversed the remainder of the District Court ruling and reinstated the sanctions against Doyle, the Udren Firm and HSBC. In doing so, it provided a valuable guide to the requirements of Rule 9011 in the age of technology.

What’s a Reasonable Attorney to Do?

The Court of Appeals pointed out that merely making a false statement is not enough to invoke Rule 9011. The relevant inquiry is what the attorney could reasonably have believed.

The concern of Rule 9011 is not the truth or falsity of the representation in itself, but rather whether the party making the representation reasonably believed it at the time to have evidentiary support. In determining whether a party has violated Rule 9011, the court need not find that a party who makes a false representation to the court acted in bad faith. "The imposition of Rule 11 sanctions . . . requires only a showing of objectively unreasonable conduct."

In re Taylor, at 282.

The Court of Appeals identified four statements that were either false or misleading:

In this opinion, we focus on several statements by appellees: (1) in the motion for relief from stay, the statements suggesting that the Taylors had failed to make payments on their mortgage since the filing of their bankruptcy petition and the identification of the months in which and the amount by which they were supposedly delinquent; (2) in the motion for relief from stay, the statement that the Taylors had no or inconsequential equity in the property; (3) in the response to the claim objection, the statement that the figures in the proof of claim were accurate; and, (4) at the first hearing, the attempt to have the requests for admission concerning the lack of mortgage payments deemed admitted. As discussed above, all of these statements involved false or misleading representations to the court.

In re Taylor, at 283. It is not a good sign when an opinion identifies multiple cases of false or misleading statements to the court.

The Court of Appeals went on to find that the attorneys had not acted reasonably.

We must, therefore, determine the reasonableness of the appellees' inquiry before they made their false representations. Reasonableness has been defined as "an objective knowledge or belief at the time of the filing of a challenged paper that the claim was well-grounded in law and fact." (citation omitted). The requirement of reasonable inquiry protects not merely the court and adverse parties, but also the client. The client is not expected to know the technical details of the law and ought to be able to rely on his attorney to elicit from him the information necessary to handle his case in the most effective, yet legally appropriate, manner.

***

Central to this case, then, is the degree to which an attorney may reasonably rely on representations from her client. An attorney certainly "is not always foreclosed from relying on information from other persons." (citation omitted). . In making statements to the court, lawyers constantly and appropriately rely on information provided by their clients, especially when the facts are contained in a client's computerized records. It is difficult to imagine how attorneys might function were they required to conduct an independent investigation of every factual representation made by a client before it could be included in a court filing. While Rule 9011 "does not recognize a 'pure heart and empty head' defense," (citation omitted),, a lawyer need not routinely assume the duplicity or gross incompetence of her client in order to meet the requirements of Rule 9011. It is therefore usually reasonable for a lawyer to rely on information provided by a client, especially where that information is superficially plausible and the client provides its own records which appear to confirm the information.

That is, an attorney must, in her independent professional judgment, make a reasonable effort to determine what facts are likely to be relevant to a particular court filing and to seek those facts from the client. She cannot simply settle for the information her client determines in advance-- by means of an automated system, no less--that she should be provided with.

***

More generally, a reasonable attorney would not file a motion for relief from stay for cause without inquiring of the client whether it had any information relevant to the alleged cause, that is, the debtor's failure to make payments. Had Doyle made even that most minimal of inquiries, HSBC presumably would have provided her with the information in its files concerning the flood insurance dispute, and Doyle could have included that information in her motion for relief from stay--or, perhaps, advised the client that seeking such a motion would be inappropriate under the circumstances.

With respect to the Taylors' case in particular, Doyle ignored clear warning signs as to the accuracy of the data that she did receive. In responding to the motion for relief from stay, the Taylors submitted documentation indicating that they had already made at least partial payments for some of the months in question. In objecting to the proof of claim, the Taylors pointed out the inaccuracy of the mortgage payment listed and explained the circumstances surrounding the flood insurance dispute. Although Doyle certainly was not obliged to accept the Taylors' claims at face value, they indisputably put her on notice that the matter was not as simple as it might have appeared from the NewTrak file. At that point, any reasonable attorney would have sought clarification and further documentation from her client, in order to correct any prior inadvertent misstatements to the court and to avoid any further errors. Instead, Doyle mechanically affirmed facts (the monthly mortgage payment) that her own prior filing with the court had already contradicted.

Doyle's reliance on HSBC was particularly problematic because she was not, in fact, relying directly on HSBC. Instead, she relied on a computer system run by a third-party vendor. She did not know where the data provided by NewTrak came from. She had no capacity to check the data against the original documents if any of it seemed implausible. And she effectively could not question the data with HSBC. In her relationship with HSBC, Doyle essentially abdicated her professional judgment to a black box. (emphasis added).

In re Taylor, at 284-85.

Kudos to the U.S. Trustee

As a preliminary matter, it is important to recognize the role played by the U.S. Trustee. While the Debtor’s counsel at least raised the issues which allowed the Court to conduct its investigation, the Court of Appeals indicated that Debtor’s counsel was not much better than the Udren firm:

Taylor's counsel was also ultimately sanctioned and removed from the case. Counsel did not perform competently, as is evidenced by the Taylors' failure to contest HSBC's RFAs. She also made a number of inaccurate statements in her representations to the court. However, it is clear that her conduct did not induce the misrepresentations by HSBC or its attorneys. As the bankruptcy court correctly noted, "the process employed by a mortgagee and its counsel must be fair and transparent without regard to the quality of debtor's counsel since many debtors are unrepresented and cannot rely on counsel to protect them."

In re Taylor, at 282, fn. 10. As a result, it is important that the U.S. Trustee’s Office stepped in to protect the integrity of the system. This author has sometimes been critical of the U.S. Trustee’s Office. However, in this case, they did exactly what they should have done—to represent the broader interest of integrity in bankruptcy in a situation where debtor’s counsel was either unable to do so (in the case of Debtor’s initial counsel) or had no financial incentive to do so (presumably with respect to Debtor’s substitute counsel).

What It Means

The meaning of the opinion is that attorneys are professionals and cannot “abdicate (their) professional judgment to a black box.” In age of massive defaults, creditors cannot be faulted for wanting to minimize their costs. However, the attorney is more than an automaton communicating the demands of the client. If attorneys were mere mouthpieces for their clients, there would be no need for them. Instead, the client could simply generate form pleadings using an automated system. Attorneys exist to exercise professional judgment on behalf of their clients. While attorneys can and must be advocates for their clients, Rule 9011 imposes a duty to review the information provided by the client and determine whether it appears to be reasonable. More importantly, once information which once appeared reasonable is placed into doubt, the attorney has a duty to communicate with the client and determine which facts can reasonably be supported.

I believe that attorneys should be skilled craftsman rather than assembly line workers. In this case, a $540 dispute over flood insurance was magnified by a factor of nearly ten times. While it might have been reasonable to rely on the initial information provided by the client through NewTrak, this certainly became unreasonable when the Debtor provided canceled checks showing that payments which the computerized record said did not exist had been made. The significance of Taylor is that for lawyers to continue to have meaning, they must bring something to court above the mere repetition of what their client told them. The Taylor case represented an existential threat to the continuing relevance of attorneys. If the attorney does nothing more than repeat information provided by the client through an automated system, then there is no justification for requiring the additional cost represented by the participation of an attorney. Fortunately, the Third Circuit Court of Appeals provided a justification for the continued involvement of skilled counsel and gave support to the many creditors’ counsel who performs their duties with judgment and skill.

The Final Word

We appreciate that the use of technology can save both litigants and attorneys time and money, and we do not, of course, mean to suggest that the use of databases or even certain automated communications between counsel and client are presumptively unreasonable. However, Rule 11 requires more than a rubber-stamping of the results of an automated process by a person who happens to be a lawyer. Where a lawyer systematically fails to take any responsibility for seeking adequate information from her client, makes representations without any factual basis because they are included in a "form pleading" she has been trained to fill out, and ignores obvious indications that her information may be incorrect, she cannot be said to have made reasonable inquiry. Therefore, we find that the bankruptcy court did not abuse its discretion in imposing sanctions on Doyle or the Udren Firm itself. However, it did abuse its discretion in imposing sanctions on Udren individually.

In re Taylor, at 286.

Friday, December 16, 2011

Of Attorneys and Ostriches

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Judge Richard Posner of the Seventh Circuit recently offered the following advice to appellate attorneys:

When there is apparently dispositive precedent, an appellant may urge its overruling or distinguishing or reserve a challenge to it for a petition for certiorari but may not simply ignore it. We don’t know the thinking that led the appellants’ counsel in these two cases to do that. But we do know that the two sets of cases out of which the appeals arise, involving the blood-products and Bridgestone/Firestone tire litigations, generated many transfers under the doctrine of forum non conveniens, three of which we affirmed in the two ignored precedents. There are likely to be additional such appeals; maybe appellants think that if they ignore our precedents their appeals will not be assigned to the same panel as decided the cases that established the precedents. Whatever the reason, such advocacy is unacceptable.
The ostrich is a noble animal, but not a proper model for an appellate advocate. (Not that ostriches really bury their heads in the sand when threatened; don’t be fooled by the picture below.) The “ostrich-like tactic of pretending that potentially dispositive authority against a litigant’s contention does not exist is as unprofessional as it is pointless.”
Gonzales-Servin v. Ford Motor Company, No. 11-1665 (7th Cir. 11/23/11), pp. 4-5. You can find the opinion here. To illustrate his point, he included the two photographs set forth below.




It is good to know that in these times of budget shortfalls that federal judges still have access to Photo Shop. This was indeed a case where two pictures were worth a thousand words.

Saturday, December 10, 2011

Montana Blogger Tagged for Big Defamation Damages in Suit by Trustee

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A Montana blogger has learned that First Amendment freedoms do not extend to saying that a bankruptcy trustee is “guilty of Fraud, Deceit on the Government, Illegal Activity, Money Laundering, Defamation, Harassment” among other things. In Obsidian Finance Group, LLC and Kevin D. Padrick v. Crystal Cox, 2011 U.S. Dist. LEXIS 137548 (D. Ore. 11/30/11), the Court ruled that the blogger was not entitled to protections accorded to traditional media and found that the trustee was not a public figure. You can read the opinion here. (PACER registration may be required). While the case is no doubt welcome news for trustees who can be exposed to some bizarre public criticism, it is troubling for its constricted definition of “media.”

What Happened

Summit Accomodators dba Summit 1031 Exchange was a company that was supposed to facilitate tax free 1031 exchanges. The company filed for chapter 11 relief on December 24, 2008 amid allegations that it had used customer’s money to fund insider ventures. At least four persons associated with the company have been indicted or convicted. The Debtor initially employed Terry Vance as Chief Restructuring Officer. It also employed Obsidian Finance Consultants, LLC as financial adviser and paid it a retainer of $100,000. Shortly after the case was filed, the Debtor sought to replace Mr. Vance as CRO with Obsidian Finance.

At the hearing to replace the CRO on February 11, 2009, the Court entertained an oral motion from the U.S. Trustee to appoint a Chapter 11 trustee. The Court granted the U.S. Trustee’s motion and suggested that perhaps Obsidian Finance or Kevin Padrick, who was one of its principals, could be appointed as Chapter 11 trustee. The U.S. Trustee did appoint Kevin Padrick as Chapter 11 trustee.

On May 12, 2009, the Court confirmed the First Amended Joint Plan of Reorganization filed by the Official Committee of Unsecured Creditors and the Chapter 11 trustee. The Plan provided for establishment of a Liquidating Trust with Kevin Padrick as Liquidating Trustee.

Crystal Cox is the daughter of one of the creditors of Summit Accomodators. She was present at the hearing on February 11, 2009 and subsequently met with Padrick on February 12, 2009. She became convinced that Mr. Padrick had used his position as financial adviser to undermine the CRO and get the job as Chapter 11 Trustee. She also was convinced that Mr. Padrick should not have been appointed Chapter 11 Trustee because his status as a principal of the Debtor’s financial adviser made him an insider and therefore ineligible for appointment.

On July 19, 2009, Crystal Cox started a blog with the URL www.obsidianfinancesucks.com. The headline of the blog reads “Kevin Padrick, Obsidian Finance Group, I Demand Transparency in the US Bankruptcy Courts.” In her blog, she described herself as follows:

I am the Self Appointed Real Estate Industry Whistleblower. I am a Self Appointed Real Estate Consumer Advocate. I want to be a voice for Real Estate Victims that are not being heard, that are Powerless, and that Have no voice.

My, Self appointed job or mission, have you is to get the TRUTH out so that real estate victims can get justice, get "made whole", get their MONEY and get on with their REAL LIFE...

Ms. Cox wrote hundreds of articles for her blog, many of which made accusations against Kevin Padrick and Obsidian Finance. In some cases, she would post ten or more articles in a day. She also wrote for:

www.BankruptcyCorruption.com
www.LiquidatingTrustee.com
www.BankruptcyTrusteeFraud.com
www.RealEstateIndustryWhistleblower.com

On January 14, 2011, the Trustee’s counsel filed a defamation action against Ms. Cox in the United States District Court of Oregon. The case went to trial on November 29, 2011. Ms. Cox represented herself. The jury found that Crystal Cox was liable for defamation to both Obsidian Finance Group, LLC and Kevin Padrick. It awarded damages of $1,000,000 to Obsidian and $1,500,000 to Mr. Padrick. The Court entered judgment against Ms. Cox on December 8, 2011.

Prior to trial, the Court made several rulings from the bench which were incorporated into a memorandum opinion on November 30, 2011.

The Trustee Was Not a Public Figure, Not Even a Limited One

The defendant argued that the trustee was a “public figure” so that proof of actual malice was required under New York Times Co. v. Sullivan, 376 U.S. 254 (1964). A person can be a public figure if they “occupy positions of such persuasive power and influence that they are deemed public figures for all purposes” or an individual may “voluntarily inject() himself or (be) drawn into a particular controversy and thereby become() a public figure for a limited range of issues.” Gertz v. Robert Welch, Inc., 418 U.S. 323, 351 (1974).

The Court found that the Trustee and his corporation were not “all purpose” public figures and that that they had not thrust themselves into a particular controversy so as to be limited purpose public figures. While the bankruptcy of Summit Accomodators itself received attention for its failure, agreeing to serve as trustee did not constitute “thrusting” oneself into a controversy. Moreover, a person must be a limited purpose public figure prior to the alleged defamatory statements rather than because of them. In this case, Ms. Cox could not create controversy over Padrick’s handling of the estate through her blog and then contend that this made him a public figure.

The case would have been a closer call if the Trustee had sought out publicity about the job he was doing. While many lawyers are publicity shy, some actively seek to keep their names in the news, issuing press releases and taking out ads trumpeting their successes. The lawyer who blows his own horn too much in a case of public interest may find himself to be a limited purpose public figure.

The Blogger Was Not Entitled to Protection As a Member of the “Media”

The Court noted that “plaintiffs cannot recover damages (against media defendants) without proof that (the) defendant was at least negligent and may not recover presumed damages absent proof of ‘actual malice.’” Opinion, p. 9. This would have made it more difficult for the plaintiffs to recover. However, the Court rejected the contention that the “investigative blogger” in this case qualified as media.

First, the Court noted that Defendant had not cited any cases giving media status to bloggers. “Without any controlling or persuasive authority on the issue, I decline to conclude that defendant in this case is ‘media,’ triggering the negligence standard.” Opinion, p. 9. This appears to be a bit of a cop out by the court, since blogging is a relatively new phenomenon. By holding that bloggers do not qualify as media because Courts have not previously granted them this status creates a self-fulfilling prophecy.

However, the Court did go one step further and lay out a test for what evidence would establish someone’s standing as a journalist.

Defendant fails to bring forth any evidence suggestive of her status as a journalist. For example, there is no evidence of (1) any education in journalism; (2) any credentials or proof of any affiliation with any recognized news entity; (3) proof of adherence to journalistic standards such as editing, fact-checking, or disclosures of conflicts of interest; (4) keeping notes of conversations and interviews conducted; (5) mutual understanding or agreement of confidentiality between the defendant and his/her sources; (6) creation of an independent product rather than assembling writings and postings of others; or (7) contacting "the other side" to get both sides of a story. Without evidence of this nature, defendant is not "media."
Opinion, p. 9. Unfortunately, the Court did not cite any precedent for this test. However, there is a growing body of case law which rejects this narrow definition.

Other Views on Bloggers and Journalists

Moreover, changes in technology and society have made the lines between private citizen and journalist exceedingly difficult to draw. The proliferation of electronic devices with video-recording capability means that many of our images of current events come from bystanders with a ready cell phone or digital camera rather than a traditional film crew, and news stories are now just as likely to be broken by a blogger at her computer as a reporter at a major newspaper. Such developments make clear why the news-gathering protections of the First Amendment cannot turn on professional credentials or status.
Glik v. Cunniffe, 655 F.3d 78, 84 (1st Cir. 2011)(rejecting qualified immunity for police officers who arrested citizen for filming them with a cell phone camera).

In another case, the Court refused to recognize a claim to a “reporter’s privilege” not to divulge sources on the grounds that it could lead to a slippery slope which would include bloggers.

The press in its historic connotation comprehends every sort of publication which affords a vehicle of information and opinion.'" (citation omitted). Are we then to create a privilege that protects only those reporters employed by Time Magazine, the New York Times, and other media giants, or do we extend that protection as well to the owner of a desktop printer producing a weekly newsletter to inform his neighbors, lodge brothers, co-religionists, or co-conspirators? Perhaps more to the point today, does the privilege also protect the proprietor of a web log: the stereotypical "blogger" sitting in his pajamas at his personal computer posting on the World Wide Web his best product to inform whoever happens to browse his way? If not, why not? How could one draw a distinction consistent with the court's vision of a broadly granted personal right? If so, then would it not be possible for a government official wishing to engage in the sort of unlawful leaking under investigation in the present controversy to call a trusted friend or a political ally, advise him to set up a web log (which I understand takes about three minutes) and then leak to him under a promise of confidentiality the information which the law forbids the official to disclose?
In re Grand Jury Subpoena (Miller), 397 F.3d 964, 979-80 (D.C. Cir. 2005)(Sentelle, Concurring).

Finally, one Court got it right when it held that “not all bloggers are journalists. However, some bloggers are without question journalists.”

Further, there is no published case deciding whether a blogger is a journalist.

However, in determining whether Smith was engaged in news reporting or news commentating, the court has applied the functional analysis suggested by commentators and the Plaintiffs in their memorandum in support of a preliminary injunction, which examines the content of the material, not the format, to determine whether it is journalism. (citation omitted). In addition, the court has considered the intent of Smith in writing the article. The court agrees that not all bloggers are journalists. However, some bloggers are without question journalists. (citation omitted).
Bidzerk, LLC v. Smith, 2007 U.S. Dist. LEXIS 78481 at *16-17, 35 Media L. Rep. 2478 (D. S.C. 2007).

Applying the Obsidian Test to A Texas Bankruptcy Lawyers Blog


It is a shame that the Judge in Obsidian v. Cox used an intellectually lazy definition of journalist when it probably did not influence the outcome of the case. The statements made by Ms. Cox in her blog were so outrageous that they likely would have failed a negligence or actual malice standard. I take personal offense because I like to think that the work that I do on this blog bears a passing resemblance to journalism. However, I doubt that I would qualify under Judge Hernandez’s test.

1. Any education in journalism. I took three years of journalism in high school and wrote for both my high school and college papers. Is that enough?

2. Any credentials or proof of any affiliation with any recognized news entity. My blog is distributed by the State Bar of Texas, the American Bankruptcy Institute and the LexisNexus Bankruptcy Community. However, these are all legal organizations rather than recognized news entities.

3. Proof of adherence to journalistic standards such as editing, fact-checking, or disclosures of conflicts of interest. I do edit my pieces, although my partner says that I should do more of it. I do fact check my posts, which are mostly based on court opinions and thus pretty easy to document. Finally, if I have involvement in a case I write about, I disclose that.

4. Keeping notes of conversations and interviews conducted. I rarely do interviews. However, when I do, I don’t necessarily keep my notes after the post is published unless it is because I have a messy desk and they get buried under something else.

5. Mutual understanding or agreement of confidentiality between the defendant and his/her sources. Sort of. If someone asks me not to use their name, I respect that. However, it just doesn’t come up that often.

6. Creation of an independent product rather than assembling writings and posts of others. Yes.

7. Contacting “the other side” to get both sides of a story. Generally, I write about judicial opinions. I do not contact the losing party to get their side of the story. If a party to a case contacts me and points out a factual error, I will correct it. Sometimes I will allow the other side to tell their side of the story in the comments. However, I did not contact Crystal Cox or Kevin Padrick about this post.

Out of seven criteria, I qualify completely under two, partially under four and not at all under one. However, if you compare my writing to that of Bill Rochelle, who writes for Bloomberg and is definitely a real journalist, you will see that we frequently write on the same topics and discuss the same issues. The difference is that he is better at it than I am and gets paid for it, while I still have my day job.

The Ironic Conclusion—It’s All in How You Say It

In reading through Crystal Cox’s rambling and often obsessive blog, there is occasionally some solid reporting and good questions raised. It certainly raised my eyebrows that the Court would appoint a trustee based on an oral motion without any prior notice to parties in interest. It also was unusual for the Court to suggest an individual to the United States Trustee. It was also a very close call as to whether the principal of the Debtor’s financial adviser qualified as a disinterested person eligible to be appointed as trustee. These were all good questions. However, from my personal review of the lawsuit and the blog, it appears that Ms. Cox took a wrong turn when she took the unusual circumstances of Mr. Padrick’s appointment and her personal dislike of him and constructed a narrative of wrongdoing and fraud. Blogs that traffic in rumor, innuendo and unsupported allegations make the rest of us look bad and bring disrepute to blogging in general. On top of that, rumor, innuendo and unsupported allegations belong on talk radio, where they can be advanced by serious journalists like Rush Limbaugh, Alex Jones and Glen Beck, not on blogs.