Trahant v. Official Committee: No Appellate Divestiture from a Non-Final Contempt Finding; No Implied Interlocutory Leave under Rule 8004(d); Prophylactic Committee Removal Is Not a Sanction

1. Introduction

This appeal arises from the Archdiocese’s Chapter 11 case, in which sensitive discovery about sexual abuse allegations was produced under a bankruptcy-court protective order. Richard C. Trahant—state-court counsel for several abuse-claimant creditors who also served as members of the Official Committee of Unsecured Creditors—received documents marked “CONFIDENTIAL” relating to decades-old allegations against a priest not named on the Archdiocese’s “Credibly Accused List” and not identified via a proof of claim.

After reviewing the protected materials, Trahant contacted (i) a high-school principal (his cousin) to confirm the priest’s continued chaplaincy and (ii) a journalist, emailing the priest’s name in the subject line and urging the reporter to keep the priest “on your radar.” When a later article publicized the priest and non-public allegation details, the Archdiocese sought relief, prompting investigation by the Committee and an independent inquiry by the United States Trustee.

The bankruptcy court (a) issued a June 7, 2022 order removing Trahant’s clients from the Committee as a protective step and stating it would later issue an order to show cause regarding sanctions against Trahant, and (b) after a show-cause hearing, entered an October 11, 2022 order imposing a $400,000 compensatory sanction under Federal Rule of Civil Procedure 37(b)(2) and 11 U.S.C. § 105(a). The district court affirmed. Trahant appealed, raising three core issues:

• Due process: whether the June 7 order violated procedural due process by “holding him in contempt” and “sanctioning” him without notice/hearing.
• Jurisdiction: whether Trahant’s appeal from the June 7 order divested the bankruptcy court of jurisdiction to enter the October 11 sanctions order.
• Merits/proportionality: whether contempt and a $400,000 sanction were an abuse of discretion.

2. Summary of the Opinion

The Fifth Circuit affirmed. It held:

• No due process violation: the June 7 order was a limited, prophylactic step to protect the bankruptcy process—not a final contempt sanction against Trahant—and the later show-cause proceeding supplied the process required for any final contempt/sanctions order.
• No divestiture of jurisdiction: the June 7 order was not a final contempt order because no sanction had been imposed; absent a final order (or express interlocutory leave under 28 U.S.C. § 158(a)(3) and Fed. R. Bankr. P. 8004(d)), Trahant’s appeal was “premature and of no effect,” so the bankruptcy court retained jurisdiction to impose sanctions on October 11.
• No abuse of discretion: Trahant violated the protective order by disseminating information “contained in, or derived from” protected discovery; the evidentiary record supported the finding; and the $400,000 award was a reasonable compensatory sanction tailored to investigation costs, especially given Trahant’s delayed and incomplete disclosures.

3. Analysis

3.1 Precedents Cited

A. Appellate posture and standards of review

• In re Lopez and In re Heritage Consol., L.L.C.: The Fifth Circuit “sits as a court of second review,” applying to the bankruptcy court the same standards the district court used. This framing matters because Trahant attacked both factual determinations (clear-error review) and legal determinations (de novo), while contempt/sanctions remain abuse-of-discretion reviewed.
• In re Bradley and Waste Mgmt. of Wash., Inc. v. Kattler: Reinforce that contempt findings and sanctions are reviewed for abuse of discretion, while due-process adequacy is reviewed de novo.
• In re Yorkshire, LLC (quoting Chaves v. M/V Medina Star): Defines abuse of discretion as legal error or clearly erroneous fact assessment.
• In re Terrebonne Fuel & Lube, Inc.: Heightens deference where both bankruptcy court and district court aligned on factual findings.

B. Due process for contempt proceedings

• In re Oliver: Supplies the classic minimum package of contempt due process—notice of charges, reasonable opportunity to defend/explain, counsel, ability to testify and call witnesses.
• Mathews v. Eldridge (quoting Cafeteria & Rest. Workers Union v. McElroy) and (quoting Morrissey v. Brewer): Provides the opinion’s “flexibility” lens—due process is context-dependent and not a rigid checklist applied identically at every procedural stage.
• Waste Mgmt. of Wash., Inc. v. Kattler and CEATS, Inc. v. TicketNetwork, Inc.: Used as contrasts. In Kattler, notice was defective because the show-cause motion named only the client, not the attorney, before a final contempt order was entered. The panel distinguishes Trahant’s situation because the June 7 order did not conclude contempt/sanctions; it expressly contemplated later process via a show-cause order.

C. The “sanction” characterization and committee membership

• In re Roman Cath. Church of Archdiocese of New Orleans: Central to rejecting Trahant’s argument that his clients’ removal from the Committee was a “non-monetary sanction.” The earlier panel held “no creditor has a ‘right’ to serve or continue serving on a Creditors Committee,” and removal did not impair substantive creditor rights. The current panel leverages that to reclassify the June 7 action as protective administration, not punishment of Trahant.

D. Appellate divestiture, bankruptcy finality, and interlocutory leave

• Griggs v. Provident Consumer Disc. Co.: The general divestiture rule—notice of appeal transfers jurisdiction over “aspects of the case involved in the appeal.”
• In re Transtexas Gas Corp.: Confirms Griggs applies “with equal force” to bankruptcy cases, while also emphasizing the need for a final order to trigger divestiture.
• In re U.S. Abatement Corp.: Provides the Fifth Circuit’s key contempt-finality rule: a civil contempt order is not final unless (1) contempt is found and (2) an appropriate sanction is imposed; also, an order is not final if it “clearly contemplates an assessment of damages in the future.” It also supplies the label “premature and of no effect” for appeals taken before finality.
• 28 U.S.C. § 158(a): Establishes bankruptcy appellate jurisdiction: final orders appeal as of right; interlocutory orders require leave under § 158(a)(3).
• Fed. R. Bankr. P. 8004(d) and In re Delta Produce, L.P.: Critical to the “no implied leave” rule. Even if a notice of appeal could be treated as a motion for leave, the district court must exercise discretion and “either grant or deny” leave.
• In re Holloway: Applied to reject implied leave. Even where the district court mistakenly treated an interlocutory order as final, that does not amount to a discretionary grant of interlocutory leave; “Nothing in the record indicate[d]” the district court treated the notice as a motion and granted it.

E. Protective orders, public access, and independent-source principle

• Le v. Exeter Fin. Corp.: Cited for the “working presumption” against sealing judicial records, situating protective orders as exceptions rather than default secrecy mechanisms.
• Seattle Times Co. v. Rhinehart: The key doctrinal anchor for discovery confidentiality—protective orders can restrain dissemination of information obtained through discovery, but do not bar dissemination of identical information obtained independently (the “independent means” limitation). The panel uses this to stress that Trahant disseminated information derived from discovery, not independently obtained.

F. Rule 37(b)(2) sanctions for protective-order violations

• Smith & Fuller, P.A. v. Cooper Tire & Rubber Co. (quoting Pressey v. Patterson): Confirms broad discretion under Rule 37(b) and specifically recognizes Rule 37(b)(2) sanctions for violating a protective order, including fee shifting.
• Fed. Deposit Ins. Corp. v. LeGrand (as quoted in In re Bradley) and Waste Mgmt. of Wash., Inc. v. Kattler: Supplies the contempt evidentiary standard—clear and convincing evidence of a violated order and noncompliance.
• Topalian v. Ehrman: Provides a four-factor framework guiding monetary sanctions (what is being punished/deterred; what costs were caused; whether costs were reasonable vs self-imposed/mitigable; least severe adequate sanction). The panel holds the bankruptcy court substantially addressed these considerations even without explicit factor citations.

G. “Competent evidence” / record-on-appeal boundaries

• Callejo v. Bancomer, S.A. and United States v. Dwoskin: Used to distinguish situations where purported “evidence” was not in the record or admitted; here, the Trustee report, invoices, deposition, and hearing exchanges were in the record and were considered by the bankruptcy court.

3.2 Legal Reasoning

A. Due process: separating interim protective steps from final contempt sanctions

The panel’s due process analysis turns on a classification decision: whether the June 7, 2022 order was a final contempt/sanctions order or an interim, protective administrative order. Trahant argued it was final because it contained a contempt finding and caused harm (public embarrassment; removal of his clients from the Committee). The court rejected that framing for three reasons:

• Function and stated purpose: The June 7 order was aimed “to prevent an abuse of process and to ensure adequate representation,” i.e., protect the bankruptcy process and prevent further leakage of sensitive discovery.
• No legally protected committee entitlement: Relying on In re Roman Cath. Church of Archdiocese of New Orleans, the court held that removal from the Committee does not implicate a protected interest because committee service is not a creditor “right,” and removal does not impair creditors’ substantive claims.
• Express contemplation of later process: The bankruptcy court said it would issue a separate order to show cause and that questions remained. That future-facing structure matters under Mathews v. Eldridge because due process requirements are assessed in light of the procedural stage and the nature of the action taken.

Accordingly, the panel held due process was satisfied because the ultimate sanctions were imposed only after a show-cause order, access to the Trustee report, and a hearing at which Trahant testified and admitted key facts.

B. Jurisdiction: no divestiture without finality (and no implied interlocutory leave)

The panel applies a two-step logic:

1. Finality of contempt in the Fifth Circuit requires sanction plus finding. Under In re U.S. Abatement Corp., contempt is not final for appeal unless there is both a finding of contempt and an imposed sanction. Because the June 7 order did not impose sanctions and contemplated future sanctions proceedings, it was interlocutory.
2. An interlocutory appeal requires explicit leave. Under 28 U.S.C. § 158(a)(3) and Fed. R. Bankr. P. 8004(d), the district court must exercise discretion to grant interlocutory leave; it cannot be implied from the fact that the district court allowed briefing to proceed or erroneously believed the order was final. Relying on In re Delta Produce, L.P. and In re Holloway, the court held the district court did not “either grant or deny” leave and thus did not grant it at all.

The practical result is significant: Trahant’s appeal from the June 7 order was “premature and of no effect,” so the bankruptcy court retained jurisdiction to proceed to a show-cause hearing and impose a compensatory sanction on October 11.

C. Merits: what counts as a protective-order breach, and why compensatory fees were appropriate

On the core contempt/sanctions question, the panel emphasizes three propositions:

• “Derived from” discovery is protected. Even if a priest’s name and chaplain role were publicly knowable, what made the disclosure wrongful was communicating (explicitly or by intended inference) that the priest was tied to confidential sexual abuse allegations learned through discovery. The court treated Trahant’s admitted intent—to “plant a seed” and spur reporting—as powerful evidence of a disclosure derived from protected material.
• Protective orders must be challenged through their procedures, not self-help disclosure. The protective order provided a mechanism (a motion) to contest confidentiality designations. The court rejected Trahant’s after-the-fact “declassification” argument because it bypassed that agreed/court-ordered process.
• Rule 37(b)(2) supports fee-based compensation for investigation costs, especially when delay increases costs. The panel relied on Smith & Fuller, P.A. to affirm that Rule 37(b)(2) sanctions can include attorney’s fees and costs caused by violating protective orders. It also credited the bankruptcy court’s finding that Trahant’s delayed and incomplete admissions drove prolonged investigation, including Trustee involvement, thereby causally contributing to a large portion of fees. The bankruptcy court’s roughly 50% haircut before arriving at $400,000 supported proportionality under Topalian v. Ehrman.

3.3 Impact

• Bankruptcy contempt appeals: reinforces the “finding + sanction” finality requirement. The opinion underscores that appealing after a contempt “finding” but before sanctions are set generally will not divest the bankruptcy court of jurisdiction, because the order is not final under In re U.S. Abatement Corp..
• Interlocutory leave must be explicit, not inferred. By invoking In re Delta Produce, L.P. and In re Holloway, the court strengthens the practice point that parties should file a proper motion for leave (or ensure the district court expressly grants leave) when appealing interlocutory bankruptcy orders. A district court’s mistaken “finality” assumption does not substitute for an explicit grant of leave.
• Protective orders in mass-tort bankruptcies: courts may use prophylactic governance tools. The court treated committee-member removal (based on counsel’s misconduct imputed to clients for governance purposes) as a permissible step to protect confidentiality and committee integrity, not as a punitive sanction against counsel. That signals latitude for bankruptcy courts managing sensitive discovery in cases involving privacy and victim protection.
• Enforcement severity: fee sanctions can be substantial when a leak triggers broad investigation. The $400,000 sanction, upheld as compensatory under Rule 37(b)(2), illustrates that confidentiality breaches can generate large, recoverable investigation costs—particularly where the court finds delay, evasion, or incomplete disclosure exacerbated the expense.

4. Complex Concepts Simplified

• Protective order: A court order that limits how discovery material may be used or shared. Here, “CONFIDENTIAL” discovery could be used only for committee duties in the Chapter 11 case and could not be disclosed without consent or court order.
• Contempt (civil): A tool courts use to enforce compliance with orders. Civil contempt often aims to compensate for harm (e.g., attorney’s fees) or coerce compliance, not to punish like criminal contempt.
• Final vs interlocutory order (bankruptcy): A “final” order is generally appealable as of right. An “interlocutory” order is not appealable unless the district court grants leave. The Fifth Circuit treats a contempt order as not “final” until the court both finds contempt and imposes a sanction.
• Divestiture of jurisdiction: Normally, a proper appeal transfers authority over the appealed issues to the appellate court, limiting the lower court’s power. But if the appealed order is not final (and no interlocutory leave is granted), the appeal does not divest the lower court of jurisdiction.
• Rule 37(b)(2) sanctions: Remedies for disobeying discovery orders (including protective orders). One common remedy is shifting reasonable attorney’s fees and costs caused by the violation.
• “Derived from” discovery (Seattle Times principle): If you learn something because discovery forced the other side to produce it, a protective order can bar you from disseminating that information—even if similar facts might exist elsewhere—unless you obtained the same information independently of discovery.

5. Conclusion

The Fifth Circuit’s decision in Trahant v. Official Committee of Unsecured Creditors affirms robust enforcement of discovery confidentiality in a sensitive mass-tort bankruptcy and clarifies two procedural guardrails: (1) interim, protective case-administration measures—like removing creditors from a committee to prevent further leaks—are not necessarily “sanctions” triggering full contempt-process requirements, and (2) contempt appellate finality requires both a contempt finding and an imposed sanction; absent explicit interlocutory leave under Fed. R. Bankr. P. 8004(d), a premature appeal does not divest the bankruptcy court of jurisdiction.

On the merits, the court treated intentional third-party communications that invite inference of confidential allegations—learned through discovery—as a clear protective-order breach, and it upheld substantial compensatory fees under Rule 37(b)(2) where the violator’s delayed and incomplete candor inflated investigation costs.