August 3, 2010 6:44 PM

Tribune Report (Mostly) Vindicates Brown Rudnick

Posted by Zach Lowe

The examiner's report in the Tribune Co. bankruptcy, made public in full today, is cause for some relief over at Brown Rudnick. The examiner's team concluded that Brown Rudnick did not intentionally or recklessly violate a confidentiality order by failing to properly redact information from a key complaint in the case. The examiner also concluded that Brown Rudnick had the right to file that complaint and did not violate a court order in doing so.

The firm, which is representing a trustee for certain creditors in the Tribune bankruptcy, appears likely to escape the most serious possible sanctions, though it might have to pay attorney fees to JPMorgan Chase.

As we've reported before, JPMorgan and its lawyers at Davis Polk & Wardwell accused Brown Rudnick of failing to properly redact a complaint filed in March that (in part) accused the banks behind the Tribune leveraged buyout of sinking the company and harming particular Tribune creditors. Several Brown Rudnick lawyers, including associate Kate Bromberg and partners Robert Stark and Martin Siegel, oversaw the redaction process to make sure all material that was supposed to be confidential remained so. Bromberg and a team of associates blacked out the confidential data in a Microsoft Word file, converted it to an Adobe PDF file, and sent it off to an associate at the Benesch law firm for electronic filing, the examiner's report says.

Problem: Once the PDF was in the federal court system's database (PACER), anyone with an account could download the document, copy and paste it back into Word, and watch the redactions disappear. Within an hour of the document's filing, Davis Polk lawyers had cracked the code and were phoning Siegel, Stark and Bromberg to alert them and ask what had happened.

Bigger problem: Brown Rudnick had done this before, as counsel to the creditors committee in the Lyondell Chemical case, the examiner found. Lawyers spotted the problem in that case, too, and Brown Rudnick fixed it. The firm's litigation team then had a meeting about the problem, and Brown Rudnick higher-ups eventually sent out a firmwide memo warning all its lawyers about it, the examiner found. Given that background, the JPMorgan/Davis Polk folks claimed, Brown Rudnick should have known better during the Tribune matter, and their error was either "intentional" or "reckless." The JPMorgan team called for strict sanctions, including limiting Brown Rudnick's access to confidential documents in such a way that would have made it difficult for the firm to act in the case.

But the examiner disagreed. The examiner, Kenneth Klee of the bankruptcy boutique Klee, Tuchin, Bogdanoff & Stern, concluded it was "implausible" that Brown Rudnick would skirt the confidentiality rules this way on purpose, in part because "it would be exceedingly simple to identify the firm as the source of the information." Klee did chastise the firm for not watching the redactions as carefully as it should have given the Lyondell incident, and concluded that a court would likely order Brown Rudnick to pay any attorney fees JPMorgan accrued in getting the initial filing pulled and going after Brown Rudnick for sanctions.

But Klee wrote that a court was unlikely to approve harsher sanctions. He also concluded that Brown Rudnick had the right to file that complaint at issue, because the allegations involved potentially legitimate claims that certain creditors were being wrongly favored over others. Various parties in the case, including the Tribune estate (represented by Sidley Austin), had argued Brown Rudnick violated an automatic stay barring complaints similar to the one the firm ultimately filed.

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