Service to the Estate and Ethics:
Conflicts
| ID | Name | Group | Other | Code
Sec |
Cross
Ref | Problem
Referenced | Proposed
Solutions |
NBRC-
0006 | "United States Law Week" |
| ALI Vote Restatement of Law
Governing Lawyers | 327 |
| 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. Foreman | Scholar-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 Lawyers | 327 |
| 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. Foreman | Scholar-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 Section | Chair, Allegheny County Bar Assoc. (ACBA), Bankruptcy and
Commerical Law Section | Summary of the ACBA's
recommendations | 327(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 Section | Chair, Allegheny County Bar Assoc. (ACBA), Bankruptcy and
Commerical Law Section | Summary of the ACBA's
recommendations | 328(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 Section | Chair, Allegheny County Bar Assoc. (ACBA), Bankruptcy and
Commerical Law Section | Summary of the ACBA's
recommendations | 1103(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. Kozyak | Attorney |
|
|
| 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. Kennedy | Professor, Michigan
Law School; former Executive Director, Commission on the Bankruptcy Laws
of the United States (1973) | Cover letter
discussing various areas of concern | 544 |
| 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 liability | None. |
NBRC-
0303 | Commercial Law League of America | Commercial 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. Forman | On 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 Feldman | Attorney | Exhibit 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. Jacobson | Attorney, 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 Robin | President and Chair, CLLA Subcommittee on Service & Ethics,
respectively, Commercial Law League of America | Three 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. Freeman | Attorney; 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. Colton | Chair, 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. |
