Web posted and Copyright © 1/12/98, American Bankruptcy Institute.

The following abstract summarizes the text of submissions made to the National Bankruptcy Review Commission. The abstract is organized by NBRC working group and topic.
The Final Report of the NBRC can be viewed on-line. To obtain a copy of any document shown below, contact the Center for Legislative Archives, Room 205, National Archives Building, Washington, D.C. 20408. The telephone number is 202/501-5350. Mr. R. Michael McReynolds, Deputy Director, will be able to assist with specific inquiries. (The NBRC documents will be housed at this location until June, 1999. Thereafter, the records will be transferred to the Center's archives in College Park, MD.)

Service to the Estate and Ethics: Conflicts
IDNameGroupOtherCode
Sec
Cross
Ref
Problem ReferencedProposed Solutions
NBRC-
0006
"United States Law Week"
ALI Vote Restatement of Law Governing Lawyers327
Conflict of interest provisions do not adequately address special issues in bankruptcy. Proposed "carve-out" to ethical conflict when one client holds monetary claim against another client. Should distinguish between "administration of estate" and "contested proceedings".Proposed Comment: Not necessarily a conflict when on client holds a monetary claim against another client - "when there is no substantial likelihood that the proceeding will devolve from "administration" to "contested" proceedings between two or more clients, NO conflict of interest under this section is ordinarily represented between the clients. Opposition argued Bankr. Attys attempting to "carve-out" of ethical treatment. Section sent back to reporters to "recommit" the section.
NBRC-
0007
Leon S. ForemanScholar-in-Residence - American College of Bankruptcy - Selective Professional Association of 7, 13 & 11 Attys; Accts; Professors; Judges * Gov't Officials (Approx. 300 Fellows).
327
Strict per se test of disinterestedness is unworkable for professionals employed by DIPS. Exacerbated by multiple corporate entities. Loss of benefits that would accrue by continuing pre-petition relationship.Per se disinterestedness test should be abolished in these Ch. 11 cases. No material adverse interest should be the test. Specific statutory guidelines should be adopted to implement no material adverse interest test. Create Uniformity in ethical conduct.
NBRC-
0006
"United States Law Week"
ALI Vote Restatement of Law Governing Lawyers327
Conflict of interest provisions do not adequately address special issues in bankruptcy. Proposed "carve-out" to ethical conflict when one client holds monetary claim against another client. Should distinguish between "administration of estate" and "contested proceedings".Proposed Comment: Not necessarily a conflict when on client holds a monetary claim against another client - "when there is no substantial likelihood that the proceeding will devolve from "administration" to "contested" proceedings between two or more clients, NO conflict of interest under this section is ordinarily represented between the clients. Opposition argued Bankr. Attys attempting to "carve-out" of ethical treatment. Section sent back to reporters to "recommit" the section.
NBRC-
0007
Leon S. ForemanScholar-in-Residence - American College of Bankruptcy - Selective Professional Association of 7, 13 & 11 Attys; Accts; Professors; Judges * Gov't Officials (Approx. 300 Fellows).
327
Strict per se test of disinterestedness is unworkable for professionals employed by DIPS. Exacerbated by multiple corporate entities. Loss of benefits that would accrue by continuing pre-petition relationship.Per se disinterestedness test should be abolished in these Ch. 11 cases. No material interest should be the test. Specific statutory guidelines should be adopted to implement no material adverse interest test. Create Uniformity in ethical conduct.
NBRC-
0203
Amy M. Tonti, on behalf of the Allegheny Co. Bar Assoc.'s Bankruptcy & Commericial Law SectionChair, Allegheny County Bar Assoc. (ACBA), Bankruptcy and Commerical Law SectionSummary of the ACBA's recommendations327(a)1107(b)Professionals employed by a debtor-in-possession should not be required to be "disinterested," but only that they not to hold or represent adverse interests.Sections 327(a) and 1107(b) should be amended to delete any suggestion that professionals employed by a debtor-in-possession must be disinterested, and to require instead that they not hold or represent an interest materially adverse to the estate. Counsel should also have to meet generally applicable professional responsibility standards.
NBRC-
0203
Amy M. Tonti, on behalf of the Allegheny Co. Bar Assoc.'s Bankruptcy & Commericial Law SectionChair, Allegheny County Bar Assoc. (ACBA), Bankruptcy and Commerical Law SectionSummary of the ACBA's recommendations328(c)
Code should not require committee counsel to be disinterested, and should not deny compensation based on disinterestedness (authorize does not provide reasons for this recommendation).Section 328(c) should be amended to clarify that committee counsel need not be disinterested and may not have compensation denied on that basis.
NBRC-
0203
Amy M. Tonti, on behalf of the Allegheny Co. Bar Assoc.'s Bankruptcy & Commericial Law SectionChair, Allegheny County Bar Assoc. (ACBA), Bankruptcy and Commerical Law SectionSummary of the ACBA's recommendations1103(b)
Section 1103(b) needs technical changes in order to function more effectively (author does not provide specific reason for changes).Section 1103(b) should be rewritten as follows: A professional employed to represent a committee appointed under Section 1102 of this title may not, while employed by such committee, hold or represent a materially adverse interest in connection with the case. Representation of one or more constituents of the same class as represented by the committee shall not per se constitute the representation of an adverse interest.
NBRC-
0219
John W. KozyakAttorney


Bankruptcy practitioners and judges were scorned just twenty years ago. The bankruptcy system should be continually improved, such as in the areas of disinterestedness and conflicts."'Disinterestedness' test and conflicts need to be addressed, but probably do not require major reform. In [the author]s opinion], some of the opinions [about these issues] are unrealistic."
NBRC-
0223
Frank R. KennedyProfessor, Michigan Law School; former Executive Director, Commission on the Bankruptcy Laws of the United States (1973)Cover letter discussing various areas of concern544
Author provides a list of 30 "Topics for Consideration by Commission on Bankruptcy Laws." Recommended topics relating to Conflicts are: 1. Elimiation of a trustee's rights under § 544 2. Treatment of alter ego liabilityNone.
NBRC-
0303
Commercial Law League of AmericaCommercial Law League of America (CLLA)


The Commerical Law League of America believes that the following conflicts issues should be considered by the NBRC: relaxing and/or narrowing disinteredness standards (CLLA believes that this issue should receive "high priority"); definitions of "professionals," advisors, lobbyists, and surveyors (high priority issue); waiver of disinteredness requirements (moderate priority); effect of potential versus actual conflicts (high priority); whether Bankruptcy Rules supersede local regulations (high priority); conflicts with regard to application to the engagement and compensation of professionals (high priority); whether one professional can represent multiple parties (high priority); and whether disqualification of individuals disqualifies their firms (high priority).No additional details are provided.
NBRC-
0307
Leon S. FormanOn behalf of the American College of Bankruptcy (ACB)"Revised Summary of College Positions," and names and addresses of ACB focus group members

ACB concludes that the Code provision imposing a strict per se test of disinteredness is "not working well" as applied to the employment of professionals by debtors-in-possession in chapter 11 cases.ACB recommends the elimination of the per se test of disinteredness as applied to the employment of professionals by debtors-in-possession in chapter 11 cases. Instead, professionals should be required only to meet the standard of having no materal adverse interest. Specific statutory guidelines should be created to enforce uniformity of ethical conduct in these situations. Also, the Code and Rules should be amended to adopt a nationwide rule relating to practice before the bankruptcy court, thereby eliminating the formality of pro hac vice motions.
NBRC-
0692
Judge Edith H. Jones and Professor Todd J. Zywicki

327(a)
In this Memorandum, authors express their concerns with the proposal currently pending before the Commission to eliminate the so-called "disinterestedness" requirement from § 327(a) as it applies to counsel and professionals for a debtor in possession...""To the extent that particular problems in this area have been identified, they can be remedied with discrete and well-tailored statutory repairs, rather than the complete removal of the disinterestedness requirement. As a result, we recommend further study of those issues on their individual merits. We advocate the need for full and complete disclosusre of "adverse interests," no matter what position the Commission takes."
NBRC-
0710
Franklin FeldmanAttorneyExhibit A - a collection of letters from and to author concerning the enforcement of a Guarantee and legal representation of the company; and, Exhibit B - exchage of letters between author and Michael L. Cook concerning a request for legal fees and a threat of sanctions.

Author invested in company which had filed chapter 11 but which got a new president and CEO whom author thought could turn the company around. Author later became convinced that the CEO had acted in his own best interests, and not those of the company, when the company had to file chapter 11 two more times. Author petitioned for the appointment of a trustee or examiner and was denied, and has been actively involved in the legal procedings of the bankruptcy. The attorney now representing the company had previously represented the CEO in his dealings with the company. Author writes with suggestions for changes in the bankruptcy code based on his experience.Any potential conflicts which may arise on account of counsel for the Debtor having previously represented personally any Director or senior executive of the Debtor should be aggressively examined at the outset of the proceeding.
NBRC-
0738
Richard B. JacobsonAttorney, Wendel & Center


"In the last few years, a number of secured creditors have required, as part of a cash collateral agreement at the dommencement of a Chapter 11, that they be given a veto over payments to the debtor's counsel, even if the Court otherwise approves the employment and payment. This creates a conflict of interest for counsel for the debtor....A lawyer might, under such circumstances, recommend greater payment than necessary to such a secured creditor.""I think such clauses shoulc be deemed unenforceable--especially since the secured creditor may object to the debtor's counsel's application for compensation."
NBRC-
0783
Murray S. Lubitz and Louis RobinPresident and Chair, CLLA Subcommittee on Service & Ethics, respectively, Commercial Law League of AmericaThree page response to the Ethics and Service Working Group's recommendations.

"We understand that there has been some additional thoughts on the issue of disinterestedness and conflict of interests. Specifically, Judge Edith H. Jones' Memorandum of April 21, 1997, requests reconsideration of the Commission's decision to eliminate disinterestedness as a requirement and instead rely upon a "material adverse standard".... The attached discussion points out the following: 1) both positions require complete disclosure of any interest; 2) CLLA agrees that changing the present standards would increase litigation, but the goal should be the most just course, not reduction of litigation; and, 3) the discrete solutions proposed by Judge Jones will not work."The CLLA continues to support the recommendations as described in Professor Lawrence P. King's memorandum of May 1, 1997 that would eliminate disinterestedness as a requirement and instead rely upon a 'material adverese standard'."
NBRC-
1023
Susan M. FreemanAttorney; Chair of the Subcommittee on Professional Ethics in Bankruptcy Cases of the Business Bankrutpcy Committee of the American Bar Association
327, 1107
"The current proposal to add a phrase to Code §1107(b) is a step in the right direction, but is an incomplete solution and not as logical or coherent as an amendment to §327. Under the suggested §1107(b) language, notwithstanding a requirement of disinterestedness, debtor-in-possession counsel would not be disqualified due to holding an insubstantial claim against or equity interest in the debtor." "The April 21, 1997 memorandum seems repeatedly to transpose the concepts of disinterestedness and conflict of interest...There is no good reason for adding the requirements of disinterestedness, and very good reasons not to do so.""Please tackle the fundamental flaws in the concept of disinterestedness instead of proposing a partial solution through additional language in Code §1107(b)."
NBRC-
1175
Robert A. ColtonChair, Business Law Section of the Florida Bar
327(a)

The Section supports the Commission's proposal to modify section 327(a). Professionals should disclose all potential conflicts, and be free of interests that are materially adverse to the debtor's estate, but need not be "disinterested" with the present meaning of section 101(14). Professionals should be deemed to have a conflict of interest if their representation would be materially and adversely affected by the professional's duties to another person or entity that currently employs or formerly employed such professional.