Court Opinion

ID: 4203464
Source: CourtListenerOpinion
Date Created: 2017-09-14 17:01:15.145129+00
Date Added: 2024-06-11T14:41:00.277305
License: Public Domain

FOR PUBLICATION

 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

IN RE J.T. THORPE, INC.; THORPE            No. 15-56430
INSULATION CO.,
                             Debtors         D.C. No.
                                          2:14-cv-03883-
                                               VAP
MICHAEL J. MANDELBROT; THE
MANDELBROT LAW FIRM,
                     Appellants,             OPINION

                 v.

J.T. THORPE SETTLEMENT TRUST;
THORPE INSULATION COMPANY
ASBESTOS SETTLEMENT TRUST;
CHARLES B. RENFREW,
Administrative Law Judge, Futures
Representative,
                         Appellees.

     Appeal from the United States District Court
          for the Central District of California
  Virginia A. Phillips, Chief District Judge, Presiding

       Argued and Submitted February 17, 2017
                Pasadena, California

               Filed September 14, 2017
2                    IN RE J.T. THORPE, INC.

    Before: Milan D. Smith, Jr. and John B. Owens, Circuit
       Judges, and Edward R. Korman, * District Judge.

               Opinion by Judge John B. Owens;
                  Dissent by Judge Korman

                          SUMMARY **

                           Bankruptcy

    The 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.

    The 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.

    The 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

     *
       The Honorable Edward R. Korman, United States District Judge
for the Eastern District of New York, sitting by designation.
    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
                  IN RE J.T. THORPE, INC.                  3

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.

    Dissenting, 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 invalidating it.

                        COUNSEL

Dirk Van Ausdall (argued), San Francisco, California;
Michael J. Mandelbrot, The Mandelbrot Law Firm, Novato,
California; for Appellants.

Gary 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.
4                  IN RE J.T. THORPE, INC.

                         OPINION

OWENS, Circuit Judge:

    Michael 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
nonadversarial procedures present the opportunity for
untested chicanery, the trusts can take steps to debar a lawyer
suspected of submitting bogus compensation claims.
                      IN RE J.T. THORPE, INC.                            5

     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. 1 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.

    The district court affirmed that decision. It concluded
that California law controls this issue, and that neither

    1
       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[.]”
6                  IN RE J.T. THORPE, INC.

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.

    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),
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.

    B. Golden and Choice of Law

    In 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 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
                    IN RE J.T. THORPE, INC.                      7

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”).

     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, 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”).

    The 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
8                 IN RE J.T. THORPE, INC.

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 1093.

    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 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 case.

    VACATED and REMANDED.

KORMAN, District Judge, 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 extensive investigation, two
asbestos trusts, each supervised by the Bankruptcy Court for
the Central District of California—the J.T. Thorpe
                  IN RE J.T. THORPE, INC.                  9

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
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, Mandelbrot 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
10                IN RE J.T. THORPE, INC.

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., 782 F.3d 1083, 1089–93 (9th Cir.
2015).

    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
                   IN RE J.T. THORPE, INC.                  11

agreement. Under these circumstances, 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., 2015 WL 5167923, at *5
(C.D. Cal. Sept. 3, 2015).

    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 factfinding.” 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 argued 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, 328 F.3d 605, 608 n.6 (9th Cir.
12                 IN RE J.T. THORPE, INC.

2003). Nor does the majority hold that the argument was
waived here. Instead, it remands to the district court to
decide whether federal or state law governs, including
whether the federal law argument has been waived. But
regardless of the nature of any procedural default in the
district court, whether by failing to raise an issue or by
raising it ineptly, we may consider an issue raised for the first
time on appeal “when the issue is purely one of law and the
necessary facts are fully developed.” Romain v. Shear,
799 F.2d 1416, 1419 (9th Cir. 1986). Because this exception
to the rule that we will “generally not consider an issue raised
for the first time on appeal,” id., applies here, a remand to
determine whether federal law applies is no more necessary
than the remand to the district court to discuss the effect of
Golden.

     “At a time where the resources of . . . this Circuit
especially, are strained to the breaking point,” Doi v.
Halekulani Corp., 276 F.3d 1131, 1141 (9th Cir. 2002), we
do not enjoy the luxury of a game of ping pong with the
district court, especially in a case where a party seeks to
wriggle out of a settlement agreement made two days into a
trial that was not going his way. I would resolve this case on
the merits, as set forth below.

                      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
                   IN RE J.T. THORPE, INC.                   13

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.cc/9AR8-289L. Subject to many requirements
not relevant here, section 524(g) of the Bankruptcy Code
allows a Chapter 11 debtor to transfer 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.cc/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
14                IN RE J.T. THORPE, INC.

and for the relevant trust to evaluate it. To the extent the
claimant shows exposure to the debtor’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
                   IN RE J.T. THORPE, INC.                   15

       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.
16                IN RE J.T. THORPE, INC.

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 respect 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
                  IN RE J.T. THORPE, INC.                  17

reasonably in debarring him, in light of their investigative
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 reflect[ed] 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 the 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
18                    IN RE J.T. THORPE, INC.

Committees. 1 These fiduciaries, whose obligations to the
Western and Plant Trusts stand on equal footing with their
duties to the Thorpe Trusts, were obviously aware of the
unethical behavior in which Mandelbrot had engaged, and to
which they had good reason not to subject themselves if they
could avoid doing so.

    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. 2
Relying on Mandelbrot’s stipulations, the bankruptcy judge
stated that she “would approve such an arrangement,” which
she described as “appropriate on the facts and circumstances
of this case.” The parties departed on the understanding that
they would memorialize the settlement in a final written
agreement.

    Mandelbrot did not hold up his end of the deal—he
repudiated the settlement 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

     1
       See J.T. THORPE SETTLEMENT TRUST, TRUST REPRESENTATIVES,
archived at https://perma.cc/FFH2-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.

     2
      The Plant Trust did not make such an agreement, because when the
parties entered into the settlement in early 2014, the Plant Trust had not
begun accepting claims.
                   IN RE J.T. THORPE, INC.                   19

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 untrustworthy, 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., 2015 WL 5167923 (C.D. Cal. 2015).
Respecting California Business & Professions Code
§ 16600, the district judge held that it protects interests—
“lawyers’ freedom of employment and competition”—that
“have nothing to do with this case.” Id. at *5. Moreover, the
judge recognized the existence of an important
countervailing interest—asbestos trusts’ need to “protect[]
their beneficiaries from a lawyer they find to be unreliable.”
Id. The district court concluded that harming the trusts’
ability to vindicate that interest “on the ground that refusing
20                 IN RE J.T. THORPE, INC.

to deal with [Mandelbrot] would harm his practice” would
serve “no public policy purpose.” Id.

     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), 834 F.3d 1003, 1007 (9th Cir. 2016).
Enforcement of a settlement agreement is an equitable
remedy, Callie v. Near, 829 F.2d 888, 890 (9th Cir. 1987),
reviewed for abuse of discretion, Golden v. Cal. Emergency
Physicians Med. Grp., 782 F.3d 1083, 1089 (9th Cir. 2015).
The ultimate question in this appeal is whether or not the
debarment provision is valid and enforceable—to the extent
Mandelbrot tries to get out from under any other provision
of the settlement agreement, his only argument is that the
                  IN RE J.T. THORPE, INC.                 21

debarment provision is void and the remainder of the deal
non-severable.

    Mandelbrot argues that California law applies because
the agreement was made in, and will largely be performed
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-authorized 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., 500 U.S. 90, 98 (1991).
Nevertheless, we will push state law aside when a
22                 IN RE J.T. THORPE, INC.

“significant conflict exists between an identifiable federal
policy or interest and the operation of state law, or the
application of state law would frustrate specific objectives of
federal legislation.” U.S. Postal Service v. Ester, 836 F.3d
1189, 1195 (9th Cir. 2016) (M. Smith, J.) (quoting Boyle v.
United Techs. Corp, 487 U.S. 500, 507 (1988)). We do not
rule “in general terms” on the compatibility of whole bodies
of law, but on whether “specific . . . state rules . . . provide
appropriate standards for federal [policy].” See United States
v. Little Lake Misere Land Co., Inc., 412 U.S. 580, 595–96
(1973). That focus does not blind us, however, to the
sensitivities of interstitial lawmaking in a federal system.
The strong medicine of the Supremacy Clause
notwithstanding, “our cases have primarily focused on the
issue of competing federal and state concerns,” and applied
an interest-balancing approach. See Dupnik v. United States,
848 F.2d 1476, 1481 (9th Cir. 1988) (emphasis added)
(internal quotation marks omitted).

    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., 782
F.3d 1083, 1087 (9th Cir. 2015) (quoting O’Neil v. Bunge
Corp., 365 F.3d 820, 822 (9th Cir. 2004)) (emphasis added).
But this is an atypical case because “clear and substantial
interests of the National Government . . . will suffer major
damage if the state law is applied.” Dupnik, 848 F.2d at 1481
(quoting United States v. Yazell, 382 U.S. 341, 352 (1966)).
Indeed, under any set of modern choice-of-law principles,
which law governs a contract will always depend on the
particular subject matter of the agreement, and on the
                      IN RE J.T. THORPE, INC.                          23

interests reflected by the laws that are presumably in
conflict. 3

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., 487 U.S. 500, 504 (1988), in “matters necessarily
subject to federal control even in the absence of statutory
authority,” Tx. Indus. v. Radcliff Materials, Inc., 451 U.S.
630, 642 (1981). In such areas, federal courts may decline to
give effect to otherwise applicable state law in order to
protect the federal interest from harm. See U.S. Postal
Service v. Ester, 836 F.3d 1189, 1195 (9th Cir. 2016)
(quoting Boyle, 487 U.S. at 507); cf. Kokkonen v. Guardian
Life Ins. Co. of America, 511 U.S. 375, 382 (1995) (holding,

    3
       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), 852 F.3d 1175, 1179 (9th Cir. 2017). As
the comment to Section 200 of the Second Restatement explains, the
critical questions in choosing the law to govern the validity of a contract
are 1) which state has a “substantial relationship” to the subject matter
of, and parties to, the agreement, and 2) which state has a “materially
greater interest” in seeing its law applied. See Restatement (Second) of
Conflict of Laws § 200 cmt. c. California’s own governmental-interest
approach takes essentially the same view. See McCann v. Foster Wheeler
LLC, 48 Cal. 4th 68, 87–88 (2010). While these principles do not speak
to federal-state conflicts of law, this general framework applies equally
well here.
24                 IN RE J.T. THORPE, INC.

in a diversity case, that “enforcement of the settlement
agreement is for state courts, unless there is some
independent basis for federal jurisdiction”) (emphasis
added).

    Bankruptcy is undoubtedly such an area. “The
Constitution grants Congress exclusive power to regulate
bankruptcy,” Kalb v. Feuerstein, 308 U.S. 433, 440 (1940),
and Congress has used that power here to set up a particular
mechanism for resolving the asbestos liabilities of debtors
facing billions of dollars in potential claims. The fact that it
has elected to place responsibility for operating that
mechanism largely in the private (albeit court-supervised)
hands of asbestos trusts does not make the field any less
intrinsically federal. Asbestos trusts are fundamentally tools
for doing the basic jobs of bankruptcy—“reliev[ing] the
debtor[s] of the uncertainty of future asbestos liabilities” so
as to preserve their economic viability, see In re Combustion
Engineering, Inc., 391 F.3d 190, 234 (3d Cir. 2004), and
adjusting the claims of potential tort creditors, see Jeld-Wen,
Inc. v. Van Brunt (In re Grossman’s Inc.), 607 F.3d 114,
126–27 (3d Cir. 2010) (en banc).

    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
                  IN RE J.T. THORPE, INC.                  25

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, 607 F.3d at 127
(internal modifications and quotation marks omitted). The
history of § 524(g)’s enactment paints the same picture: The
asbestos trust system is concerned primarily with the long-
term protection of assets for future claimants. As the House
Judiciary Committee’s report on the trust mechanism
characterized it, the new procedure would involve “the
establishment of a trust to pay the future claims,” a solution
the Committee described as meant “to help protect” those
unknown creditors who would not emerge for “up to
30 years or more” because of their disease’s “long latency
period,” and in the meantime would have no opportunity to
participate in the bankruptcy proceedings. H.R. Rep. No.
103-835, at 40–41 (emphasis added) (discussing § 111 of
H.R. 5116, enacted as 11 U.S.C. § 524(g) by the Bankruptcy
Reform Act of 1994, Pub. L. No. 103-394, 108 Stat. 4106
(1994)). This explains Charles Renfrew’s participation in
this case as the representative of those future claimants’
interests.

    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
26                 IN RE J.T. THORPE, INC.

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, 425 F.2d
984, 986 (9th Cir. 1970) (emphasis added). Entering into a
consensual agreement to debar a lawyer who admits to a
record of misleading submissions is a clear example of an
asbestos trust acting so as to effectuate that congressionally-
appointed obligation. State law should not be permitted to
interpose itself between an asbestos trust and what amounts
to the execution of a federal policy simply because it may
come within the rubric of a restriction on the practice of law.

    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., 556 F.3d 815 (9th Cir. 2009) (M. Smith, J.).
Winterrowd involved a petition for attorney’s fees for work
done, in a federal district court located in California, by a
lawyer admitted to practice only in Oregon. The right to
attorney’s fees arose out of California’s substantive law, and
the district court denied an award of fees for the Oregon
lawyer’s work on the basis that, under the California
Supreme Court’s decision in Birbrower, Montalbano,
Condon & Frank, P.C. v. Superior Court of Santa Clara
County, 17 Cal. 4th 119 (1998), his work constituted the
unauthorized practice of law in California. See Winterrowd,
556 F.3d at 820.

   Winterrowd rejected that argument. As the majority
opinion in that case held:
                   IN RE J.T. THORPE, INC.                   27

       “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 (‘The [State Bar] Act does not regulate
       practice before United States courts.’). This
       is true even ‘when admission to a federal
       court is predicated 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
       ‘inappropriate[ly] reli[ed] on state authority
       to impose federal discipline’ . . . . In re Poole,
       222 F.3d at 622.”

Winterrowd, 556 F.3d at 820. The ultimate question in the
present case is the same one as in Winterrowd—in our
federal system, who has the power to regulate practice in
federal court? The answer is the same as well: federal law.

    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
28                    IN RE J.T. THORPE, INC.

proceedings. See, e.g., In re Holocaust Victim Assets
Litigation, 424 F.3d 132, 137 (2d Cir. 2005); see also Fed.
R. Civ. P. 53(c)(1)(A) (giving court-appointed masters the
power to “regulate all proceedings” before them). 4

     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 before
it.” See Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991).
Declining to enforce asbestos trusts’ debarment agreements,
which fundamentally sound in attorney discipline, solely
because they would violate a state’s policy regulating the
practice of law in that state, would run counter to the basic
principle that “[a]dmission to practice law before a state’s
courts and admission to practice before the federal courts . . .

     4
       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, 105 F. Supp.
2d 139, 154 (E.D.N.Y. 2000). In all other respects, however, the CRT
remained “an Association [Ger: Verein] established under Swiss law,”
and operated under the ordinary Swiss legal rules applicable to any other
similarly-situated entity. See CLAIMS RESOLUTION TRIBUNAL, RULES
GOVERNING THE CLAIMS RESOLUTION PROCESS (AS AMENDED) 4,
archived at https://perma.cc/3DKC-7GAU.
                    IN RE J.T. THORPE, INC.                    29

are separate, independent privileges,” “even when admission
to a federal court is predicated upon admission” to a state
bar. Brown v. Smith (In re Poole), 222 F.3d 618, 620 (9th
Cir. 2000). A lawyer simply may not “waste . . . [a federal]
court’s time and resources with cantankerous conduct, even
in the unlikely event a state court would allow him to do so.”
Chambers, 501 U.S. at 53 (quoting NASCO, Inc. v.
Calcasieu Television & Radio, Inc., 894 F.2d 696, 706 (5th
Cir. 1990)).

    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 nonjudicial ones,
has always been subject to exclusive federal control. “A
State may not enforce licensing requirements which, though
valid in the absence 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,
373 U.S. 379, 385 (1963) (internal quotation marks omitted)
(holding that Florida’s prohibition on the unauthorized
practice of law could not be enforced against a non-lawyer
who represented clients before the U.S. Patent and
Trademark Office in conformity with the federal agency’s
rules). As the Federal Circuit has succinctly stated, “any
state or local law which attempts to impede or control the
federal government or its instrumentalities is deemed
presumptively invalid . . . . So too state licensing
requirements which purport to regulate private individuals
who appear before a federal agency are invalid.” Augustine
v. Dep’t of Veterans Affairs, 429 F.3d 1334, 1339–40 (Fed.
Cir. 2005). This is the key to whether California has any
interest in applying its law to the agreement in this case.
30                 IN RE J.T. THORPE, INC.

Where California has no power to act, no rational analysis
could ascribe to it an interest greater than the one the United
States possesses in assuring the integrity of practice before
asbestos trusts that are both court-supervised and
congressionally-sanctioned.

    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., 550 U.S. 1, 11 (2007). When state law interferes with
the “purposes” of national banks, however, or “tend[s] to
impair . . . their efficiency as federal agencies,” it must give
way to the federal interest in their unmolested operation.
First Nat’l Bank in St. Louis v. Missouri, 263 U.S. 640, 656
(1924). This sort of limited, contextual, displacement is a
well-established mechanism for balancing the need to
protect federal interests against the convenience and comity
of applying a readymade body of state law. See also
Mortensen v. Bresnan Comms., LLC, 722 F.3d 1151, 1159
(9th Cir. 2013) (explaining that under the Federal Arbitration
Act, agreements to arbitrate are generally governed by state
law, except in those particular circumstances where state
contract rules work, as a practical matter, to disfavor
arbitration).

III.    California Has No Interest in Refusing to Enforce
        the Debarment Provision

     Even 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
                   IN RE J.T. THORPE, INC.                  31

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 (2008).
California Rule of Professional Conduct 1-500 enacts a
similar policy, only specific to the practice of law: It
provides (also with exceptions not relevant here), that an
attorney “shall not be 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 [of the State
Bar of California] to practice law.” Rule 1-500 protects “the
autonomy of attorneys and the ability of clients to freely
choose an attorney.” State Bar of Cal., Formal Ethics Op.
No. 1988-04 (1988), archived at https://perma.cc/E4R5-
YRL2.

    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
32                 IN RE J.T. THORPE, INC.

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
practice are prohibited. Howard v. Babcock, 6 Cal. 4th 409,
421–23 (1993) (emphasis added). Rather, Rule 1-500
permits “reasonable” restraints—ones where the “balance
between competing interests” tilts in favor of enforcing the
parties’ agreement. Id. at 419 (quoting Haight, Brown &
Bonesteel v. Superior Court, 234 Cal. App. 3d 963, 969
(1991)).

     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 Prof’l 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, . . .
[s]hall 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, 61 Cal. 4th 116,
139 (2015), and, with respect to attorney discipline, the
California Supreme Court has embodied that policy of
consensual dispute resolution in California Rule of Court
9.21. Under Rule 9.21, an attorney charged with professional
misconduct may ask the California Supreme Court to agree
to allow the lawyer to resign from the bar in lieu of going
through disciplinary proceedings.
                   IN RE J.T. THORPE, INC.                   33

    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.,
2015 WL 5167923, at *6 (C.D. Cal. 2015). Moreover, in
exchange for his agreement, Mandelbrot got something in
return—the trusts’ promise to dismiss their money claims
with prejudice. In both function and form, then, the
debarment provision mirrors the mechanism of agreed
resignation in lieu of discipline that California applies in its
own courts. Nor is there any significant interest on
California’s part in barring the use of a functionally identical
mechanism to regulate practice before federally-sanctioned
asbestos trusts.

    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
34                 IN RE J.T. THORPE, INC.

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, 6 Cal. 4th at 418 n.
5—only applies to “agreement[s] in which a restriction on
the lawyer’s right to practice is part of the settlement of a
client controversy.” Model Rules of Prof’l Conduct r. 5.6
(Am. Bar. Ass’n 2016) (emphasis added).

    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
fundamental public policy against anticompetitive
agreements. See Application Grp., Inc. v. Hunter Grp., Inc.,
61 Cal. App. 4th 881, 899–902 (1998). But outside of
agreements intended to restrain competition—which have
always been subject to the per se rule of illegality that
                     IN RE J.T. THORPE, INC.                        35

Mandelbrot wants applied here—California courts have
consistently construed § 16600 by considering the public
policies actually at stake in each case.

    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. 44 Cal.
4th 937, 942 (2008). The California court rejected the firm’s
argument that § 16600 “embrace[s] the rule of
reasonableness in evaluating competitive restraints,” id. at
947–48 (emphasis added), as well as the Ninth Circuit’s
view that the statute does not invalidate “narrow”
restraints—ones that only affect a relatively small portion of
a party’s business, id. at 948–50. The court concluded that
§ 16600 flatly “prohibits employee noncompetition
agreements.” Id. at 942.

    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 “noncompetition agreements,” Id.,
distinguished two potentially inconsistent cases on the
grounds that they did not “provide[] any guidance on the
issue of noncompetition agreements,” id. at 950 n.5, and
relied entirely on cases involving noncompetition
agreements for support. 5 Moreover, the California courts

    5
       See Muggill v. Reuben H. Donnelley Corp., 62 Cal. 2d 239 (1965);
Chamberlain v. Augustine, 172 Cal. 285 (1916); Thompson v. Impaxx,
Inc., 113 Cal. App. 4th 1425 (2003); D’sa v. Playhut, Inc., 85 Cal. App.
36                   IN RE J.T. THORPE, INC.

have applied Edwards consistent with their prior precedent
applying a rule of reason outside the context of agreements
meant to restrain competition. 6

     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, 174 Cal. App. 4th
1270, 1281–82 (2009). The provision’s purpose, as the
district court recognized, is clear: “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.” In re J.T.
Thorpe, Inc. & Thorpe Insulation Co., 2015 WL 5167923, at
*6 (C.D. Cal. 2015). Under the particular circumstances of
this case, the debarment provision is perfectly consonant
with California’s interest in regulating agreements
restricting the practice of law.

4th 927 (2000); Metro Traffic Control, Inc. v. Shadow Traffic Network,
22 Cal. App. 4th 853 (1994).

     6
       Compare the post-Edwards decision in USS-POSCO Industries v.
Case, 244 Cal. App. 4th 197, 207–10 (2016) (distinguishing Edwards,
and applying a rule of reason, because the challenged contractual
provision was not “a quintessential noncompete agreement”), with Great
W. Distillery Prods., Inc. v. John A. Wathen Distillery Co., 10 Cal. 2d
442, 446 (1937) (holding that exclusive dealing and exclusive
distributorship agreements do not violate § 16600 because they primarily
create a mechanism for promoting trade, and restrain it only
“incidentally”), Martikian v. Hong, 164 Cal. App. 3d 1130, 1133–34
(1985) (holding that California evaluates agreements with little
anticompetitive effect for reasonableness under all the circumstances),
and Centeno v. Roseville Cmty. Hosp., 107 Cal. App. 3d 62, 68–72
(1979) (same).
                  IN RE J.T. THORPE, INC.                  37

    Nor does our recent decision in Golden v. California
Emergency Physicians Medical Group, 782 F.3d 1083 (9th
Cir. 2015), require a different analysis. In that case, a
medical services company, which operated a significant
portion of California’s emergency rooms, fired a doctor who
specialized in emergency medicine. The doctor sued. As part
of a settlement agreement, the doctor stipulated to “waive
any and all rights to employment with [the company] or at
any facility that [the company] may own or with which it
may contract in the future.” Id. at 1084–85, 1089. The
question presented was whether § 16600 “prohibits a
settlement agreement that may constrain a physician’s
freedom to practice medicine.” Id. at 1084. The district court
in that case answered a categorical “no,” on the grounds that
§ 16600 only applies to covenants not to compete. Id. at
1089.

    We reversed, explaining that, in addition to covenants
not to compete, § 16600 also applies to “other contractual
restraints on professional practice.” The 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.
38                     IN RE J.T. THORPE, INC.

    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 remanded to the district
court to “determine [that] in the first instance” because the
record was undeveloped. Id. at 1092–93. 7 Golden did not
provide much guidance on what constitutes a “substantial”
restraint in this context. We explained that a restraint may be
“substantial” regardless of its “form or scope,” but went no
further. See id. at 1092. To give meaning to that standard,
then, we look back to the California cases discussed above,
see supra at 30–31, which clearly indicate that—outside the
noncompetition context—§16600 bars only restraints that
are unreasonable under all the circumstances. 8

   In sum, the United States has a strong interest in
enforcing the debarment provision, and since it is

     7
      On remand from our decision in Golden, the district court held that
the no-employment provision was not a substantial restraint. 2016 WL
7799633 (N.D. Cal. 2016). An appeal from that order is pending as Case
No. 16-17354.

     8
        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, 376 P.3d 151, 155 (Nev. 2016). And the state has simply
adopted the American Bar Association’s Model Rules of Professional
Conduct, including Rule 5.6, which bars only “agreement[s] in which a
restriction on the lawyer’s right to practice is part of the settlement of a
client controversy.” (emphasis added). In light of our analysis of
California law, no more needs to be said.
                 IN RE J.T. THORPE, INC.               39

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.