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."
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:
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
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
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 LexisNexis 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.
at A Texas Bankruptcy Lawyer's Blog
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so do you think that this one is going to get appealed? (and not as pro se?)