ADMINISTRATION OF CASES UNDER THE BANKRUPTCY CODE
The costs of administering a bankruptcy case are paid prior to any payment
to creditors, including other priority creditors. (2111) Creditors, debtors, and other
parties in interest thus all benefit from the efficient administration of bankruptcy
cases. Fair and expeditious administration of cases provides quick and often better
results for creditors by lowering the estate's administrative costs. The Commission's
Recommendations on bankruptcy administration focus on increasing the efficiency
and fairness of the system and reducing the costs of administering bankruptcy cases.
RECOMMENDATIONS
3.3.1 United States Trustee Program
The Director of the Executive Office for United States Trustees should
hold the position of Assistant Attorney General.
The United States Trustee regions should match the number, size and
configuration of the federal judicial circuits.
3.3.2 Personal Liability of Trustees
Trustees appointed in cases under Chapter 7, 11, 12 or 13 of the
Bankruptcy Code should not be subject to suit in their individual
capacity for acts taken within the scope of their duties as delineated in
the Bankruptcy Code or by order of the court, as long as the applicable
order was issued on notice to interested parties and there was full
disclosure to the court.
Chapter 7, 12 and 13 trustees only should be subject to suit in the
trustee's representative capacity and subject to suit in the trustee's
personal capacity only to the extent that the trustee acted with gross
negligence in the performance of the trustee's fiduciary duties. Gross
negligence should be defined as reckless indifference or deliberate
disregard of the trustee's fiduciary duty.
A Chapter 11 trustee of a corporate debtor only should be subject to suit
in the trustee's representative capacity and subject to suit in the trustee's
personal capacity only to the extent that the trustee has violated the
standard of care applicable to officers and directors of a corporation in
the state in which the Chapter 11 case is pending.
Debtors in possession should remain subject to suit to the same extent as
currently exists under state or federal law.
3.3.3 Qualification of Professionals under 11 U.S.C. § 1107(b)
Section 1107(b) should be amended to provide that a person should not
be disqualified for employment under § 327 solely because such person
holds an insubstantial unsecured claim against or equity interest in the
debtor. Section 327 and § 101(14) should remain unchanged.
3.3.4 National Admission to Practice
Admission to practice in one bankruptcy court, usually by virtue of
being admitted to practice in the relevant United States District Court,
should entitle an attorney, on presentation of a certificate of admission
and good standing in another district court, to appear in the other
bankruptcy court without the need for any other admission procedure.
The Recommendation will not affect requirements (if any) to associate
with local counsel. Similarly, the Recommendation will not change the
requirements under state law governing the practice of law and the
maintenance of an office for the practice of law. The Recommendation
will only amend the local bankruptcy rule or practice requirements
governing special admission of attorneys to the bankruptcy court who
are otherwise not admitted to the bar of the district court in the district
where the bankruptcy court is located to appear in a particular
bankruptcy case.
3.3.5 Fee Examiners
The Bankruptcy Code should explicitly preclude the appointment of fee
examiners as an improper delegation of the court's duty to review and
award compensation under 11 U.S.C. § 330. The Recommendation does
not affect the court's authority under 11 U.S.C. § 1104(c) to appoint an
examiner to investigate and report on certain aspects of a Chapter 11
case, for example, a potential fraudulent transfer or a particularly
complicated claims estimation.
3.3.6 Attorney Referral Services
11 U.S.C. § 504 should be amended to permit an attorney compensated
out of a bankruptcy estate to remit a percentage of such compensation
to a bona fide, nonprofit, public service referral program. Such attorney
referral program must be operating in accordance with state laws and
ethical rules and guidelines governing referrals. The Recommendation
does not affect the requirement that all compensation arrangements be
disclosed in the application for retention under Fed. R. Bankr. P. 2014
and in the application for compensation under Fed. R. Bankr. P. 2016(a).
DISCUSSION
Two groups are principally involved in the administration of bankruptcy
cases. The United States Trustee Program is an executive branch agency within the
Department of Justice that is responsible for overall bankruptcy administration in
forty-eight states, Puerto Rico & Guam. (2112) The United States trustee is responsible
for the oversight of bankruptcy cases as well as panel and standing trustees and
professionals retained in bankruptcy cases. (2113) In addition to its oversight function,
the United States trustee may "appear and be heard on any issue in any case or
proceeding" under the Bankruptcy Code. (2114) The United States Trustee Program is
funded, in principal part, by fees collected in bankruptcy cases. (2115)
Private professionals (usually attorneys) also assist in the administration of
bankruptcy cases either as standing or panel trustees or as professionals retained by
the estate. (2116) Similar to U.S. trustee's fees, standing trustees, panel trustees, and
estate professionals are paid on an administrative priority basis, ahead of any
distribution to unsecured creditors. (2117) Efficient use of bankruptcy professionals'
time thus results in lower administrative costs. Bankruptcy professionals and trustees
also must meet certain conflict of interest requirements under the Bankruptcy Code
prior to being retained. (2118) The statutory requirements do not provide a bright line
rule for professionals or courts to determine whether a particular professional is
eligible for retention by the estate. (2119) These provisions are thus a source of
confusion for bankruptcy professionals seeking to be retained and compensated as
well as for the bankruptcy courts reviewing their retention and fee applications. (2120)
The Commission's Recommendations on bankruptcy administration focus on
the relationship between these two groups and the bankruptcy process in an effort to
improve the administration of bankruptcy cases and thereby lower administrative
costs. The Recommendations accomplish this goal in a number of ways. The U.S.
trustee Recommendations are designed to improve the stature and visibility of the
Program as well as to increase uniformity of policy among the U.S. trustee regions.
The standing and panel trustee Recommendations resolve a conflict among the circuit
courts by proposing a uniform personal liability standard for breach of a trustee's
fiduciary duty. The bankruptcy professional Recommendations are designed to
reduce inequities under the disinterestedness requirements for professionals retained
by a debtor in possession. The remaining administrative Commission
Recommendations are designed to enforce certain obligations under the Code and
streamline certain specific procedures in an effort to reduce administrative costs.
3.3.1 United States Trustee Program
The Director of the Executive Office for United States Trustees should
hold the position of Assistant Attorney General.
The United States trustee regions should match the number, size and
configuration of the federal judicial circuits.
For more than sixty years the separation of bankruptcy adjudication from
bankruptcy administration has been debated. (2121) Before the adoption of the 1978
Reform Act, the bankruptcy system often consisted of a closed practice, ex parte
communications, cronyism and judicial control. (2122) Reformers at the time believed
that bankruptcy courts should operate like other federal courts in order to remain
feasible in an economically uncertain future. The reformers were right. Despite the
volume of attacks on the current system, it is virtually certain that during the
remarkably tumultuous 1980's the old bankruptcy system would have been
considered a national scandal and the reforms enacted in response would have been
draconian. Cronyism is no longer a systemic problem in bankruptcy. Concern over
separation of functions has shifted to questions concerning the placement and
structure of the entity responsible for bankruptcy administration.
There is a great deal of geographic diversity as well as differences in
operations and management styles between the various regional U.S. trustee offices.
The Commission solicited comments and suggestions from interested persons across
the country in an effort to gain a broad-based view of the U.S. Trustee program's
strengths and weaknesses. The Commission devoted four working group sessions
to the operation of the U.S. Trustee program; two of these sessions were held in
Washington, DC; and one each in Detroit, MI and Chicago, IL. The Commission
also actively solicited comments from members of the legal community and public
during its meetings around the country, including meetings (in addition to
Washington, DC) in Santa Fe, NM, San Diego, CA, Akron, OH, Des Moines, IA,
Seattle, WA, New York, NY, Detroit, MI, and Chicago, IL. The Commission's
Recommendations are based on the discussions and open forum suggestions on how
to improve the operation of the U.S. Trustee system.
A. Bankruptcy Administration Under the 1978 Reform Act
Incorporating some of the 1973 Commission's Recommendations, the 1978
Reform Act expanded the jurisdiction of the bankruptcy judges to resolve
bankruptcy-related disputes. (2123) At the same time, the Reform Act removed most of
the bankruptcy judges' administrative responsibilities for bankruptcy cases. (2124) The
legislative history indicates that achieving this separation was a principal goal of the
Reform Act:
Bankruptcy judges administer the present bankruptcy system, and are
responsible for the administration of individual bankruptcy cases.
Their administrative, supervisory, and clerical functions in these
matters are in addition to their judicial duties in bankruptcy cases. . . .
[T]he inconsistency between the judicial and administrative roles of
the bankruptcy judges . . . places him (sic) in an untenable position of conflict, and seriously compromises his impartiality as an arbiter of bankruptcy disputes. (2125)
Congress created the U.S. Trustee program as a pilot program under the
supervision of the Attorney General to provide for the performance of the
administrative duties that were removed from the judges. The U.S. trustees were
charged with supervising the administration of bankruptcy cases in eighteen of the
ninety-four federal judicial districts ("pilot districts"). The Reform Act did not
provide for the performance of administrative duties in those districts for which no
U.S. trustee was authorized ("non-pilot districts"). To the extent these duties were
performed, they were divided among bankruptcy judges, the bankruptcy court clerks,
estate administrators, and the Administrative Office. The decision to place the pilot
program in the Department of Justice ("DOJ") resulted from consideration of a
number studies, (2126) as well as the executive nature of the duties assigned. (2127) Initially,
the program was slated to sunset on April 1, 1984. (2128) The Attorney General was
directed to submit a report to Congress, the President and the Judicial Conference no
later than January 3, 1984, on the feasibility, cost and effectiveness of the program,
along with recommendations as to its implementation in all federal judicial
districts. (2129)
In order to fulfill this responsibility, the DOJ commissioned an in-depth study
of the pilot program. (2130) The study, completed in 1983, concluded that the program
had been successful because case administration within the pilot districts was better
than in the non-pilot districts. (2131) The report recommended nationwide expansion of
the program on a regional basis under the auspices of the DOJ. (2132) Subsequently,
various professional organizations adopted and seconded the Recommendation. (2133)
In January 1984, the Attorney General issued a report which concluded that
the pilot program had been successful. (2134) Although the Attorney General's Report
set forth a proposed organizational structure for a nationwide U.S. Trustee
program, (2135) it made no firm recommendation as to which government agency should
house the program(2136) and refused to make a recommendation regarding nationwide
expansion until Congress resolved the problem of the bankruptcy courts' jurisdiction
in light of the Northern Pipeline decision. (2137) Shortly thereafter, the General
Accounting Office assessed the effectiveness of the bankruptcy process and
concluded that more guidance and supervision of private trustees was necessary. (2138)
Deliberations on the jurisdiction and structure of the bankruptcy courts
occupied Congress until July of 1984. In the meantime, the expiration date of the
U.S. Trustee program was twice extended. (2139) In 1985, Abt Associates conducted an
additional study and confirmed its earlier findings and recommendations. (2140) Finally,
with the restructuring of the jurisdiction of the bankruptcy courts completed in the
1984 amendments, the executive branch prepared legislation to establish a national
U.S. Trustee system and Congress turned its attention to the U.S. trustees.
B. Expansion of the Pilot Program
i. The House of Representatives
In July, 1985, hearings on the U.S. Trustee program were held by the
Subcommittee on Monopolies and Commercial Law of the House Judiciary
Committee. (2141) All of the witnesses favored expansion of the program. (2142) Although
there appeared to be no question that some entity was required to handle the
administrative aspects of bankruptcy cases, the placement of that entity was the
subject of contention among the branches of the federal government. Six witnesses,
including the Associate Attorney General of the DOJ, testified in favor of
continuation of the U.S. Trustee program within the DOJ, (2143) while two other witnesses, both judges, stressed that the program should be located within the judicial
branch. (2144)
The main issue raised throughout the hearings was the potential for conflicts
of interest should the program be administered by the DOJ, since that agency
represents most governmental agencies in bankruptcy cases. (2145) Proponents argued
that placement of the program in the executive branch had not given rise to any of the
theoretical problems cited by the opponents, including, formerly, the DOJ, which had
vehemently opposed responsibility for the pilot program in 1978.
The bill passed by the House, H.R. 5316, set the term of office of a U.S.
trustee at five years, rather than the four-year term originally proposed in other House
bills. This was done in order to minimize politicization of the office of the U.S.
Trustee. The bill required the Attorney General to find "cause" to remove a U.S.
trustee, again to minimize undue political influence. While retaining the duties set
forth for the U.S. trustees in general, the bill enumerated eight specific duties to be
performed where appropriate.
On March 25, 1986, the Senate held hearings on its bill, S. 1961. (2146)
Testimony in favor of the program's expansion was received from representatives of
the DOJ and various professional groups, while representatives from the Judicial
Conference and members of the bench voiced concerns regarding expansion of the
program and its placement. (2147)
The judicial branch strongly opposed placement of the U.S. Trustee program
in the DOJ, proposing instead a system of "bankruptcy administrators" housed within
the judicial branch. (2148) In April 1986, the Director of the Administrative Office
forwarded a Proposal to Congress titled the "Bankruptcy Administration
Improvements Act of 1986". (2149)
The Proposal authorized the Judicial Conference to determine the number of
bankruptcy administrators (with a maximum limit of one per judicial district), who
would be appointed for a term of five years and were removable only for cause by the
courts of appeals. (2150) The Proposal strongly resembled earlier Proposals for separate
administrative systems, especially with regard to the duties to be performed by the
bankruptcy administrators. (2151) It gave bankruptcy administrators the duty of
reviewing all pleadings filed with the court and reporting whether a matter involved
a dispute and whether the administrator objected to it. (2152) Bankruptcy clerks were
empowered to enter final orders in matters where no objection had been filed. (2153) The
bankruptcy administrators were given standing to raise, appear and be heard on
issues(2154) and were allowed to present to the court, on the record and with notice, any
views or recommendations regarding matters within the scope of their duties. (2155)
Finally, the administrators were authorized to investigate any allegations of fraud and
misconduct. The court was empowered sua sponte to take any action it deemed
necessary in a case to ensure its expeditious disposition. (2156) This Proposal was never
introduced in either house of Congress, although its presence influenced some of the
final provisions in the 1986 Amendments.
On May 7, 1986, the Senate began consideration of its version of bankruptcy
judgeship legislation, S. 1923. (2157) An amendment to establish the U.S. Trustee
system nationwide(2158) was adopted. On May 8, the Senate also began consideration
of H.R. 2211 relating to family farmer bankruptcies, (2159) a companion bill passed by
the House and referred to the Senate. (2160) The Senate passed H.R. 2211, striking out
everything after the enacting clause, and substituting the text of S. 1923, as
amended. (2161) The Senate insisted on its amendments and asked for a conference. (2162)
As passed by the Senate, the provisions in H.R. 2211 pertaining to the U.S.
Trustee program differed substantially from other bills. As a compromise to satisfy
those who opposed the U.S. Trustee program's expansion -- principally members of
the judiciary and attorneys in certain jurisdictions(2163) -- the bill provided an "opt out"
alternative. (2164) In districts which chose to "opt out", the duties proposed to be
performed by the U.S. trustees were to be performed by officers of the courts. (2165)
A Conference was called to reconcile the differences between the House and
Senate versions of the Bill. The Conference Report created a U.S. Trustee program
consisting of 21 regions. (2166) U.S. trustees were to be appointed for five-year terms
by the Attorney General, (2167) who was granted completely unfettered discretion to
remove both U.S. trustees and assistant U.S. trustees. (2168) Although it did not contain
an "opt out" provision, it provided that the judicial districts in Alabama and North
Carolina would not come into the U.S. Trustee program until 1992, unless they
decide to "opt in" sooner. (2169) The "opt in" provision has since been extended to
October 1, 2002. (2170)
On October 27, 1986, President Reagan signed Pub. L. No. 99-554, the
"Bankruptcy Judges, U.S. Trustees, and Family Farmer Bankruptcy Act of 1986" into
law. (2171) The 1986 Amendments provided for the national and permanent expansion
of the U.S. Trustee system to 48 states, Puerto Rico, the U.S. Virgin Islands, and
Guam. (2172)
C. Reforming the U.S. Trustee Program
While much of the criticism leveled at the U.S. Trustee program has been
addressed in independent studies and in testimony before the Commission, one
persistent concern has been frequently expressed: the U.S. Trustee program is subject
to a great deal of inconsistency in the implementation of its policies and in the
positions it takes from region to region. This criticism, in the Commission's view,
has some merit. While some local variance is appropriate, as one witness noted,
The treatment accorded by a federal agency must be uniform.
Unfortunately, the U.S. Trustee program suffers because of the
intentional, though, in retrospect, possibly misguided and probably
misunderstood, emphasis of the legislation on local variance. Local
variance is a resource and emphasis issue. While many, if not most
of the U.S. Trustee offices operate well, several U.S. trustees have
taken positions and instituted programs that are contrary to sound
bankruptcy administration. The Department of Justice consistently
has failed to recognize the need for strong and clear national policies
for this fledgling program.... (2173)
The U.S. Trustee program must balance the need for a national policy on substantive
issues of bankruptcy law with the need to adopt local practices to meet local
variations. For example, local variations on fee awards should be acceptable in order
to reflect local markets. A national uniform policy should exist, however, on issues
related to creditors' committee formation. The premise that like cases should be
treated alike runs throughout the Bankruptcy Code. An integral role of the U.S.
trustee is to enforce uniform bankruptcy policy on a national level. Two structural
changes would address this issue and would serve to elevate the U.S. Trustee
program within the DOJ.
1. Management Structure of the U.S. Trustee Program
The Director of the Executive Office for U.S. Trustees ("EOUST") should be
designated an Assistant Attorney General. The current structure creates confusion
about who runs the U.S. Trustee program - the Attorney General and the Director or
the regional U.S. trustees. The confusion plays a large role in the lack of consistency
in policy development and implementation. In 1995, the National Academy of Public
Administration ("NAPA") conducted a study of alternative structures for the U.S.
Trustee Program. (2174) The NAPA Report concluded:
To improve the program's ability to change policies
and procedures, the panel believes the head of the
program should be an Assistant Attorney General,
rather than a director. This change would elevate the
program's status within the Department of Justice . .
. and allow it to advocate more strongly for the
flexibility and authority it needs to fulfill its mission.
This change would also likely enhance the program's
status within the bankruptcy community.
(2175)
In the 1978 Reform Act creating the U.S. Trustee program, an additional
Assistant Attorney General position was established for the Director of the EOUST,
but designation of the Director to that position was not mandatory. (2176) At that time,
the DOJ did not use this additional position for the director of the U.S. Trustee
program. Since 1978, the EOUST Directorship has never been elevated to the
Assistant Attorney General position created in the Reform Act. It is unclear why the
EOUST Director has never been appointed to the position that was clearly created for
that purpose.
The position of Assistant Attorney General for the EOUST Director would
assist the U.S. Trustee program in a number of ways. First, it would clarify that the
Director is the head of the program and not just the executive office. Second, it
would help centralize discussions and positions on bankruptcy policy within the DOJ.
Currently, bankruptcy issues are considered in a variety of fora with little (if any)
coordination of effort or coherence of approach. As an Assistant Attorney General,
the Director could coordinate bankruptcy policy initiatives and ensure a coherent
approach. The broad impact of bankruptcy policy deserves a consistent approach and
coordination of effort.
The Recommendation's goal could be accomplished by either appointing the
EOUST Director to the tenth Assistant Attorney General position created in the 1978
Reform Act or by increasing the number of Assistant Attorney Generals to eleven.
2. Geographic Structure of the U.S. Trustee Regions
The number of U.S. trustee regions should be reconfigured to match the
number and size of the federal judicial circuits. The current hodgepodge of 21
regions is the result of political compromises made when the program was expanded
nationally in 1986. The size and workload of these regions vary widely. The lack
of a rational structure also leads to confusion about the role that the U.S. trustees
should play. Reducing the number of regions would streamline the management
structure and would give the remaining trustees a clearer role in assuring the
consistent development and implementation of policy.
The NAPA Report recommended that the U.S. trustee regions be reconfigured
and reduced in number, noting that, while some coordination of policies is already
performed by the EOUST, its role could be enhanced to work more directly with the
field offices to ensure the appropriate level of uniformity. (2177) The U.S. Trustee
Program currently has one of the most widespread regional structures of any federal
agency or department. There are 21 regional offices, compared with a norm of
approximately 10. (2178) In addition to the 21 regional offices, the program also has 93
field offices, 20 of which are located within the regional offices. (2179) According to the
NAPA Report, much of the work performed by the regions is duplicated by either
field office staff or the EOUST. The NAPA Report concluded that reconfiguration
would significantly streamline the structure of the U.S. Trustee program and allow
the EOUST to take on more responsibility for collaborating directly with field offices
on special problems of program-wide significance. (2180)
U.S. trustee regions that comport with the federal judicial circuits will have
a number of advantages. First, the same circuit-wide law will apply throughout a
single U.S. trustee region. This will eliminate the U.S. trustee regions that cover
more than one circuit. (2181) Second, U.S. trustee policy will be uniform on a circuit-wide basis. In addition, this Recommendation is consistent with the Commission's
Recommendation for appeals of final bankruptcy court orders to go directly to the
courts of appeals in order to increase bankruptcy stare decisis. Reducing the number
of regions to the current federal judicial circuits and thereby shortening the
administrative distance between the EOUST and the field offices will increase
uniformity throughout the U.S. Trustee program.
3.3.2 Personal Liability of Trustees
Trustees appointed in cases under Chapter 7, 11, 12 or 13 of the
Bankruptcy Code should not be subject to suit in their individual
capacity for acts taken within the scope of their duties as delineated in
the Bankruptcy Code or by order of the court, as long as the applicable
order was issued on notice to interested parties and there was full
disclosure to the court.
Chapter 7, 12 and 13 trustees only should be subject to suit in the
trustee's representative capacity and subject to suit in the trustee's
personal capacity only to the extent that the trustee acted with gross
negligence in the performance of the trustee's fiduciary duties. Gross
negligence should be defined as reckless indifference or deliberate
disregard of the trustee's fiduciary duty.
A Chapter 11 trustee for a corporate debtor only should be subject to
suit in the trustee's representative capacity and subject to suit in the
trustee's personal capacity only to the extent that the trustee has violated
the standard of care applicable to officers and directors of a corporation
in the state in which the Chapter 11 case is pending.
Debtors in possession should remain subject to suit to the same extent as
currently exists under state or federal law.
The Bankruptcy Code provides that the trustee(2182) is the representative of the
estate and can sue and be sued. (2183) A trustee must "manage and operate" estate
property according to applicable law, the same as an owner of the property. (2184) Some
courts require compliance with applicable nonbankruptcy law when a trustee
manages estate property, but not when the trustee is liquidating estate property. (2185)
Despite this distinction, courts have had difficulty finding Chapter 7 or 11 trustees
to serve in cases "where there are environmental problems under federal or state laws
which impose personal liability on 'owners or operators' and have had to dismiss
such cases."(2186)
Bankruptcy trustees have statutory as well as common law fiduciary duties
governing the operation and liquidation of property of the estate. A number of post-petition scenarios can lead to litigation against the trustee, for example,
environmental obligations discovered post-petition, (2187) failure to operate the debtor's
business in a prudent manner, (2188) erroneous disbursements of funds, (2189) or failure to
properly supervise estate professionals. (2190) Under these scenarios, a trustee may be
sued as the representative of the estate, to the extent of assets held by the estate.
Determining whether trustees may be personally liable for negligence in the
performance of their statutory and common law duties is more difficult.
The Bankruptcy Code does not provide a personal liability standard for
bankruptcy trustees. Since 1978, the courts that have addressed this issue have come
to contrary conclusions. Under what has been described as a "crazy quilt" of
decisions, (2191) trustees are held to standards of care ranging from personal liability for
negligence(2192) to personal liability for willful and intentional acts in violation of the
trustee's duties. (2193) Some courts also find that trustees have derived judicial
immunity for acts taken within the scope of their authority. (2194) The only Supreme
Court decision in this area, Mosser v. Darrow, held a trustee personally liable for
allowing his agents to profit at the estate's expense. (2195) Unfortunately, Mosser has
not provided much guidance to subsequent courts and has been cited for a broad
range of positions. (2196)
Any attempt to codify a standard for personal trustee liability runs the risk
that some measures would provide too little protection and some measures would
provide too much protection. Too little protection might expose a trustee to
excessive personal liability and dissuade capable people from becoming trustees. (2197)
Too much protection will not encourage responsible decision making on difficult
estate management issues. The balance sought by the Recommendation is to protect
trustees from personal liability where warranted while encouraging responsible
administration of estate assets. The Recommendation proposes a uniform personal
liability standard for a trustee's breach of fiduciary duty only and not for a trustee's
personal liability to third parties.
Under the Recommendation, trustees (including Chapter 11 trustees) would
not be subject to suit in their individual capacity for acts taken within the scope of
their statutory or court-ordered authority, so long as the applicable court order was
issued on notice to interested parties and full disclosure to the court. Outside that
scope of authority, trustees would be personally liable for gross negligence in the
performance of their fiduciary duties. Thus, to hold a trustee personally liable for a
breach of fiduciary duty, a plaintiff would have to show (1) that the trustee was not
acting within the scope of authority granted under the Bankruptcy Code or by court
order; and (2) that the trustee was grossly negligent in the performance of the
trustee's fiduciary duties. The Recommendation defines gross negligence as reckless
indifference or deliberate disregard of the trustee's fiduciary duty. (2198) This definition
is consistent with the definition of gross negligence in other civil liability contexts. (2199)
A. Codifying Current View on Derived Judicial Immunity
A majority of circuits find that trustees have derived judicial immunity for
actions taken within the scope of their duties. (2200) The scope of a trustee's duties
includes any action (including an exercise of business judgment)(2201) taken pursuant
to statute or court order. (2202) Often times, a party that is dissatisfied with the result of
a court order disposing or otherwise administering an estate asset will attempt to
collaterally attack the order by suing the trustee personally. (2203) Even the threat of a
suit against the trustee during negotiations in order to gain leverage may have equally
pernicious effects. Under these circumstances, a trustee should have derived judicial
immunity from suit. (2204)
There are a myriad of difficult decisions that may face a trustee trying to
administer an estate:
In fact, trustees are commonly faced with decisions to either take
action or not, whether it be to file a complaint, a motion to set aside
a judgment, or to assume or reject a lease or other contract with
virtually no notice. Sometimes trustees have only hours to make such
decisions and are faced with the unenviable duty of preserving the
status quo under the threat of rule 11 sanctions or being sued
personally for failure to preserve and protect an intangible asset of the
estate. Other decisions trustees face frequently include the decision
whether or not to close a business in Chapter 11 or an operating
Chapter 7, whether or not to attempt to sell assets or surrender them
to secured creditors, whether to administer or abandon causes of
action, and a myriad of other decisions which trustees must make
upon conflicting, second-hand information being provided by the
debtor and creditor groups, as well as professionals upon whom the
trustee relies. Despite all this, trustees are expected to make such
decisions in a timely manner. A trustee, unlike the debtor who often
purchased the assets and created the problems which caused the
filing, never holds a "full deck of cards to play."(2205)
The Recommendation alleviates this burden by protecting a trustee who is acting
pursuant to a court order or a statute. The Supreme Court in Mosser noted that
seeking instructions from the court is a means by which a trustee can resolve a
difficult decision and also avoid personal liability. (2206)
Full disclosure of all relevant facts to the court and interested parties is
required for judicial immunity to cover actions taken in furtherance of a court order.
One court described the scope of immunity as depending "upon the totality of the
circumstances in which an order is drawn."(2207) To the extent that the trustee seeks
court authorization in a fully disclosed and informed process with notice and a
hearing, derived judicial immunity will attach. (2208) Failure to "analyze the risks
inherent in the various known options and bring the risks to the attention of the court
and the parties for their consideration" will result in a lack of immunity. (2209) Under
these circumstances, a trustee would have to defend an action on the basis of whether
it was within a reasonable business judgment. (2210)
By providing immunity from suit under these circumstances, the
Recommendation encourages trustees to seek guidance from the court on difficult
estate issues. A court order in this context would require notice to creditors, the
debtor, and other parties in interest, and these parties would not be able to collaterally
attack the order by suing the trustee personally after the fact. (2211) Thus, the
Recommendation (1) encourages trustees to seek court approval of difficult estate
decisions, (2) gives them immunity for actions taken to implement such decisions,
and (3) requires diligence on the part of interested parties to seek direct review of
these orders rather than collaterally attacking the order later by bringing a personal
suit against the trustee. The Recommendation promotes the interest of the estate in
two ways. First, capable professionals are not dissuaded from becoming trustees and
the clear liability guidelines permits them to work effectively. Second, trustees are
encouraged to seek guidance from the courts before making difficult estate
administration decisions.
B. Immunity Consistent with Environmental Liability Under CERCLA
and Other State Clean-up Laws
Possible personal liability for environmental clean-up costs under CERCLA
and other state clean-up laws has been cited as an impediment to obtaining a trustee
to administer a bankruptcy estate. (2212) At least one court has held in the bankruptcy
context that Congress did not abrogate judicial immunity for trustees and other estate
administrators when it enacted CERCLA. (2213) In Sundance, the debtor and a creditor
brought a strict liability action against the state receiver/bankruptcy custodian(2214) for
the clean-up costs associated with the use of certain pesticides on the debtor's fruit
orchard during the receiver's tenure. (2215) The court held that the receiver cannot be
held strictly liable for actions taken within the scope of its judicial authority, even if
those actions may have been unlawful. (2216) The Recommendation would preserve
immunity from environmental clean-up costs resulting from conduct within the scope
of a trustee's duties. To the extent that a trustee acts outside the scope of the trustee's
authority and in gross negligence of the trustee's fiduciary duty, the trustee should be
individually liable under CERCLA or other relevant state environmental clean-up
law. This approach is consistent with a recent CERCLA amendment that limits the
environmental liability of, among others, trustees and other fiduciaries. (2217)
C. Immunity Consistent with Administering an Estate's Tax Obligations
Personal liability for failure to administer adequately a bankruptcy estate's tax
obligations is another risk facing bankruptcy trustees. As part of the 1978 Reform
Act, trustees under title 11 were exempted from liability to the federal government
for paying claims prior to paying unpaid government claims. (2218) This provision (31
U.S.C. § 3713(b)) has been interpreted literally, to bar personal trustee liability
imposed by section 3713 and does not exempt them from liability
from other sources; it merely relieves the trustee from liability from
the federal priority statute and no other. In other words, the relief
from liability under section 3713 is very limited, trustees may be held
personally liable for the unpaid taxes of the estates they administer if
such liability can be grounded on any other law, such as breach of
fiduciary duty, breach of official duty, or possibly even negligence or,
were there any, some other statutory source of liability. (2219)
Other statutory provisions impose liability, however, notwithstanding the
exemption in section 3713(b). For example, personal liability for administrative tax
penalties is imposed on "responsible persons who fail to withhold and pay federal
employment taxes."(2220) Similarly, trustees have been found liable for the capital
gains taxes on the sale of estate property. (2221)
Trustees should be encouraged to determine the tax effects of estate
administration. Compliance with the provisions of section 505(b) will exempt a
trustee (among others) from any liability associated with such tax. (2222) The Recommendation would not preempt the section 505 procedure for determination and
discharge of an estate's tax liability. The Recommendation also would not alter a
trustee's statutory liability for nonpayment of trust fund taxes. As stated above, to
the extent that a bankruptcy trustee is acting pursuant to a court order, the trustee
should have derived judicial immunity from personal liability resulting from the
trustee's performance. Similarly, if the trustee is acting outside the scope of the
trustee's authority and in gross negligence of the trustee's fiduciary duty, the trustee
should be personally liable for tax liabilities or penalties incurred as a result.
D. Personal Liability for Gross Negligence Outside Scope of Trustee's
Authority
The Recommendation contemplates that personal liability for a breach of
fiduciary duty would attach only to the extent a trustee acted with gross negligence
outside the scope of the trustee's Bankruptcy Code or court-ordered authority.
Actions for mere negligence could still be asserted against the trustee as the
representative of the estate, but not in the trustee's personal capacity. In order to hold
a trustee personally liable, it would be necessary to demonstrate that (1) the trustee's
conduct was outside the scope of judicial authorization or statutory duty to administer
the estate or manage the debtor's business; and (2) the complained of conduct was
grossly negligent of the trustee's fiduciary duties. Gross negligence is defined as
reckless indifference or deliberate disregard of the trustee's fiduciary duties.
The National Association of Bankruptcy Trustees ("NABT") recommended
a "willful and intentional" standard for personal trustee liability. (2223) Specifically, the
NABT Proposal would add section 323(c), to provide that
The trustee in a case under this title may only be sued in the trustee's
representative capacity, unless the trustee has committed willful and
intentional acts in violation of the trustee's fiduciary duties. (2224)
While the NABT provided good arguments to support its Proposal, in some instances
their standard would provide too much protection for trustees and would not
encourage trustees to seek court approval of difficult estate administration decisions.
A good example of circumstances in which a "willful and intentional"
standard would provide too much protection is Mosser v. Darrow.(2225) In Mosser, the
bankruptcy trustee permitted his assistants to trade extensively in bonds issued by the
debtor's subsidiaries, often selling their holdings to the trustee at a profit. (2226) During
the course of administration, the trustee never had any financial interest in the profits
made by his employees. (2227) Over eight years of trusteeship, the trustee filed one
accounting for one of the debtor-corporations and none for the other. (2228) When the
trustee finally resigned and filed his accounts and request for fees, the Securities and
Exchange Commission objected, as did the successor trustee. The district court
agreed with the special master's report and surcharged the trustee $43,447.46. The
court of appeals disagreed and found that "principles of negligence applied and that
a trustee could not be surcharged . . . unless guilty of 'supine negligence.'"(2229) The
court of appeals was further persuaded by the argument that "this surcharge creates
a very heavy liability upon a man who enjoyed no personal profit and must be
condoned 'so as not to strike terror into mankind acting for the benefit of others and
not for their own.'"(2230)
The Supreme Court disagreed, finding that personal liability was the "most
effective means" of encouraging diligent administration of bankruptcy estates. (2231)
The Mosser Court noted that a trustee could obtain protection from personal liability
by "seek[ing] instructions from the court, given upon notice to creditors and
interested parties, as to matters which involve difficult questions of judgment."(2232)
The trustee in Mosser did not willfully and intentionally violate his fiduciary duties,
and arguably would not be found personally liable under the NABT standard. (2233) The
facts in Mosser are the type of circumstances in which the Recommendation would
impose personal liability, without making trustees personally liable for mere
negligence.
In Chapter 11 cases, the debtor ordinarily remains in possession of the estate
to manage its property and conduct its business. The scope of liability of officers and
directors of a corporation is set by appropriate state law. The Recommendation
recognizes that the debtor in possession should be held to the same standard of care
as existed prepetition with regard to the debtor. When a trustee is appointed in a
Chapter 11 case, the trustee acts in place of the debtor in possession and should be
subject to the standard of care for officers and directors set forth by the state where
the Chapter 11 case is pending. The Recommendation does not change the result
from current law.
Competing Considerations. The scope of a trustee's fiduciary duty is defined
by state law as well as the Bankruptcy Code. (2234) It may be argued that the standard
for breach of that fiduciary duty should be determined by the courts on a case-by-case
basis. Trustees encounter problems, however, when administering estates that
encompass two circuits with divergent personal liability standards. Moreover,
trustees argue that an unclear standard of care encourages personal suits because the
case law in this area supports divergent outcomes. The Recommendation may not
result in fewer actions being filed against trustees, but it will provide courts with a
clear standard to judge personal liability. As discussed earlier, trustees want a clear
personal liability standard for breaches of fiduciary duty in order to better govern
their conduct. The Recommendation achieves this result, even if it does not adopt
the standard proposed by the NABT. The Commission sought a fair middle ground
that would encourage trustees to seek court guidance on difficult decisions and
protect trustees only under circumstances warranting protection.
3.3.3 Qualification of Professionals under 11 U.S.C. § 1107(b)
Section 1107(b) should be amended to provide that a person should not
be disqualified for employment under § 327 solely because such person
holds an insubstantial unsecured claim against or equity interest in the
debtor. Section 327 and § 101(14) should remain unchanged.
[Comments By Commissioner Edith H. Jones]
Sections 327 and 1107(b):
Disinterestedness for Debtor in Possession's Professionals
Under 11 U.S.C. § 327(a), the trustee, "with the court's approval, may employ
one or more attorneys, accountants, appraisers, auctioneers, or other professional
persons, that do not hold or represent an interest adverse to the estate, and that are
disinterested persons." Section 1107(a) makes this provision applicable to a debtor
in possession.The so-called "disinterestedness requirement" has been interpreted
strictly by most courts, has been used to disqualify counsel with any interest adverse
to the estate, and does not require a showing that the adverse interest be material in
nature. The Commission considered and initially adopted a Proposal which would
have replaced this traditional standard with one which would have required
disqualification of a debtor in possession's professionals only on a showing of an
interest which is materially adverse to the estate. On reconsideration, however, the
Proposal was rejected in favor of a substitute Proposal which retains the
disinterestedness requirement but amends § 1107(b) to provide that a person is not
disqualified for employment solely because he holds an insubstantial unsecured claim
against, or equity interest in, the debtor.
During the meeting of the Service to the Estate and Ethics Working Group
(the "Working Group") in June, 1996, it was proposed that Section 327(a) be
amended to eliminate the so-called "disinterestedness" requirement from Section
327(a) as it applies to counsel and professionals for a debtor in possession (the "First
Proposal"). The First Proposal was supported by the Memorandum of Professor
Lawrence P. King and Elizabeth I. Holland dated August 22, 1996 (the "King
Memo"). The First Proposal was adopted by a vote of the Commission at its
September 1996 meeting. In December 1996, the Working Group formulated a
companion Proposal to define adverse interest in Section 327(a). Under the terms of
this Proposal, a professional retained by a debtor in possession would be disqualified
from such representation only if the professional had a "conflict of interest," defined
as a "substantial risk that such professional's representation . . . will be materially and
adversely affected by the professional's own interests or by the professional's duties
to another person that currently employs or formerly employed such professional, or
a third person." (the "Second Proposal" and together with the First Proposal, the
"Proposals"). The Second Proposal to define conflict of interest under Section
327(a) was never adopted by the Commission.
In April, 1997, Commissioner Edith H. Jones requested reconsideration of the
Commission's vote, and supported her request with a Memorandum dated April 22,
1997, written by Judge Jones and Professor Todd J. Zywicki. In July, 1997, in
response to this Memorandum and subsequent discussion, the original affirmative
vote in favor of the First Proposal was reconsidered and reversed by a 7-2 vote. The
Commission then voted to amend § 1107(b) to address specifically the problem
resulting from unnecessary disqualification a professional who holds an insubstantial
unsecured claim against or equity interest in the debtor. This suggested modification
constitutes the Commission's Recommendation to Congress.
Given the strong policies that are advanced by a strict disinterestedness
requirement-policies respecting the administration of the bankruptcy system and
public confidence in the integrity of the bankruptcy system-the Commission decided
to retain the general requirement of disinterestedness and instead recommend specific
and narrowly-tailored remedies aimed at specific problems. Other narrowly-tailored
statutory reforms were also considered but found to be either unworkable or
undesirable. None of the reasons advanced to support the First Proposal persuaded
the Commission of the need for complete repeal of disinterestedness in debtor in
possession cases.
This report summarizes the Commission's reasons and conclusions. Part I
clarifies how the Recommendation affects the Bankruptcy Code. Part II presents the
reasons favoring retention of the current disinterestedness requirement. Part III
addresses competing considerations advanced in the discarded First Proposal. Part
IV then details this Recommendation by the Commission to modify § 1107(b) and
the reasons for that conclusion.
I. Defining "Disinterestedness"
Under § 327(a), the trustee, "with the court's approval, may employ one or
more attorneys, accountants, appraisers, auctioneers, or other professional persons,
that do not hold or represent an interest adverse to the estate, and that are
disinterested persons, to represent or assist the trustee in carrying out the trustee's
duties . . . ." Section 1107(a) provides a debtor in possession with the same powers
to employ professionals, subject to the same limitations, as imposed on a trustee.
Thus, under the terms of § 327(a), a debtor in possession may employ only
professionals who (1) do not hold or represent an interest adverse to the estate and
(2) are "disinterested persons."
Section 327(a) incorporates the definition of "disinterested person," found in
§ 101(14). Section 101(14) regulates two types of relationships: subsections (A)
through (D) regulate preexisting relationships between the debtor's counsel and the
debtor; subsection (E), on the other hand, regulates relationships between the
debtor's counsel and third parties, such as creditors of the debtor. In relevant part,
subsection (E) defines a "disinterested person" as one who "does not have an interest
materially adverse to the interest of the estate or any class of creditors or equity
security holders, by reason of any direct or indirect relationship to, connection with,
or interest in, the debtor or an investment banker specified in subparagraph (B) or (C)
of this paragraph, or for any other reason...."(2235) By its own terms, the statutory language of § 101(14)(E), incorporated by reference into § 327(a), requires that any
relationship to, connection with, or interest in the debtor be material.
Courts have construed § 101(14)(E) "rigidly."(2236) As a result, in practice, § 101(14)(E) has been applied as a "catch-all clause."(2237) In particular, the final sentence of § 101(14)(E) requiring a lack of disinterestedness "for any other reason"
has been characterized as being "broad enough to include anyone who in the slightest
degree might have some interest or relationship that would color the independent and
impartial attitude required by the Code."(2238)
In addition to requiring that professionals be "disinterested persons," current
§ 327(a) also requires that those professionals "do not hold or represent an interest
adverse to the estate." Unlike the literal definition of "disinterested person," this
provision of § 327(a) contains no materiality requirement. Case law, however, has
incorporated this requirement that counsel have no interest adverse to the
estate-regardless of materiality--into the definition of § 101(14)(E). Thus, rather
than construing the "no adverse interest" requirement of § 327(a) directly, case law
has instead applied this requirement in a round-about manner through § 101(14)(E)'s
disinterestedness requirement. Despite this ambiguity, we will assume throughout
this memo that the use of the term "disinterestedness" in the proposed draft of §
327(a)(2) incorporates the case law construing that term rigorously, thereby requiring
that the applicant have no interest adverse to the estate, regardless of materiality.
Thus, it is unsettled whether the current strict standard governing the
relationship between debtor's counsel and third parties is rooted in the
"disinterestedness" requirement of § 327 (incorporating § 101(14)(E)) or in § 327's
prohibition against having any "interest adverse to the estate." Despite this
ambiguity in the source, however, one thing is clear: in order to serve as counsel to
a debtor in possession or trustee, an attorney is required to show a lack of any interest
adverse to the estate, regardless of materiality.
The Recommendation would amend § 1107(b) to exempt from the strict
disinterestedness requirement those situations in which a professional who seeks to
represent the debtor or trustee held an insubstantial unsecured prepetition claim
against or equity interest in the debtor. This exception is structured similarly to the
current provision in § 1107(b) permitting continued representation of a debtor by a
professional who represented the debtor before the debtor sought bankruptcy relief.
II. Purposes of the Disinterestedness Requirement
The disinterestedness requirement is now applied both to cases where a
trustee is appointed and where a debtor remains in possession in Chapter 11. The
requirement that professional persons employed by a trustee have no interest adverse
to the estate originated in former Bankruptcy Rule 215(a). (2239)
Under the Bankruptcy
Act, only the attorney (but no other professionals) appointed to represent a Chapter
X trustee was required to be "disinterested," as that term was defined in former Rule
1-202(c)(2). (2240)
Disinterestedness under the Act was defined similarly to the current
rigorous definition of disinterestedness under the Code. Section 327(a) expanded the
disinterestedness requirement, though, to apply to all professional persons in all cases
under the Code, regardless of whether a trustee is actually appointed. (2241)
As now applied to professionals employed by a trustee or debtor in
possession, the disinterestedness requirement is extremely strict. "As a general
principle, professional persons employed by the trustee should be free of any
conflicting interest which might in the view of the trustee or the bankruptcy court
affect the performance of their services or which might impair the high degree of
impartiality and detached judgment expected of them during the administration of a
case."(2242)
There are three primary reasons for strict adherence to standards of
disinterestedness. First, "strict standards are necessary in light of the unique nature
of the bankruptcy process."(2243)
Second, strict disinterestedness requirements are
necessary to preserve public and judicial confidence in the bankruptcy system. (2244)
Third, ethical standards for bankruptcy practice should be consistent with state
ethical rules. All three of these of these policy goals are relevant regardless of
whether a case involves a trustee or a debtor in possession.
A. Disinterestedness and the Bankruptcy Process
Strict disinterestedness standards are necessary because of the unique
pressures inherent in the bankruptcy process. (2245)
The trustee and his professionals are
required to act as a fiduciary for the estate, its creditors, other parties in interest, and
the court, and not solely as the trustee's advocate. The disinterestedness standard,
therefore, is designed to insure that all issues relevant to the administration of the
estate are properly raised and vented before the court. As such, a strict
disinterestedness standard is designed to eliminate any conflicts that might cause the
trustee and his professionals to favor one party over another, to "take it easy" on one
creditor or group of creditors, or to refuse to pursue possible claims or avenues of
inquiry because of any direct or indirect pressures. As one commentator has
observed, "Indirect or remote associations or affiliations, as well as direct, may
engender conflicting loyalties. The purpose of the [disinterestedness] rule is to
prevent even the emergence of a conflict irrespective of the integrity of the person
under consideration."(2246)
After all, it is the creditors' money that we are talking about: they are entitled
to have debtor's professionals who will be free of pressures to compromise the
interests of some or all of them. (2247)
The fundamental reality of a reorganization case
is that the debtor is buying its continued existence with someone else's money.
Creditors are being forced to forego payment, so that the debtor can spend money in
hopes of reorganizing its operations-and paying its attorneys, accountants, and other
professionals. It may be that creditors are better off overall as a result of foregoing
payment in the short run, in exchange for a larger payoff at the end of the collective
proceeding. This does not change the fact, however, that the debtor is spending the
creditors' money. As a result, creditors are entitled to demand that the debtor's
professionals be free of pressures to compromise their interests. (2248)
The pressures of the bankruptcy system will bear on estate administration
regardless of whether the estate is being administered by a trustee or a debtor in
possession. In fact, because the debtor in possession has inherent conflicts of interest
and is by definition not disinterested, an even stricter adherence to disinterestedness
may be appropriate for the debtor in possession's professionals than for those of a
disinterested trustee.
B. Disinterestedness and Public Confidence in the Bankruptcy
System
Disinterestedness is also critical to the preservation of public and judicial
confidence in the integrity of the bankruptcy system. Because of the nature of a
bankruptcy case, there must always be vigilance to ensure that the public has
confidence in the bankruptcy system's fairness and that it is operating to the public
benefit, not just to enrich debtors and their professionals. Already, widespread public
perception, whether accurate or not is beside the point here, is that the bankruptcy
system is nothing more than "a cash cow to be milked to death by [bankruptcy]
professionals."(2249)
Several recent disqualification battles have been widely covered
by the press, not only by traditional legal periodicals, shaking the confidence of many
observers in the fairness of the bankruptcy system. (2250)
Maintaining the disinterestedness of the estate's professionals is critical to
correcting the perception that the bankruptcy system is being administered unfairly.
The system needs attorneys to adhere to high ethical standards whether they represent
a trustee or a debtor in possession. In fact, requiring disinterestedness is probably
even more important when the estate is being administered by a debtor in possession;
arguably, the debtor in possession and any creditors' committee lack the same
incentives and ability to monitor the performance of counsel that a trustee has.
By replacing disinterestedness with a less rigorous showing of materially
adverse conflict, the Proposals ignored the long-understood reality that conflicts of
interest actually do exist and can cripple public confidence in the bankruptcy system
even if their magnitude cannot be quantified. As Justice Douglas observed in Woods
v. City Nat'l Bank & Trust, "Where an [attorney] was serving more than one master
or was subject to conflicting interests, he should be denied compensation. It is no
answer to say that fraud or unfairness were not shown to have resulted."(2251) Justice
Douglas explained the reason for this prophylactic rule was that
the incidence of a particular conflict of interest can seldom be measured with any degree of certainty. The bankruptcy court need not speculate as to
whether the result of the conflict was to delay action where speed was
essential, to close the record of past transactions where publicity and
investigation were needed, to compromise claims by inattention where
vigilant assertion was necessary, or otherwise to dilute the undivided loyalty
owed to those whom the claimant purported to represent. Where an actual
conflict of interest exists, no more need be shown . . . . (2252)
C. Disinterestedness and State Ethical Standards
The third factor underlying strict adherence to disinterestedness for counsel
is the desirability of consistency between the ethical rules of the Bankruptcy Code
and the various state ethical rules. A brief overview of existing ethical rules under
the ALI's Restatement of the Law Governing Lawyers, the Model Rules, and the
Model Code will demonstrate that the current strict disinterestedness requirement is
more consistent with other ethical imperatives to which all lawyers are bound than
the Second Proposal's standards. Under governing state ethical codes, a lawyer is
forbidden from representing one client in asserting or defending a claim against
another current client-even if the simultaneous representation is in connection with
unrelated matters-unless consent is given by all affected parties."(2253)
The Proposals would have established a lower ethical standard than those
prevailing under state regulations of the practice of law. Such incongruity is largely
avoided by the final Recommendation's modest modification of disinterestedness.
Under the ALI's Restatement of the Law Third, The Law Governing Lawyers
(the "Restatement"), (2254) it is not completely clear whether bankruptcy lawyers must
comply with § 209, which deals with the ethical obligations associated with
representing parties with conflicting interests in civil litigation, or § 201, which
applies to conflicts of interest in transactional matters. (2255) The most recent proposed
amendments to the Restatement opted to take "no position on the applicability" of
§ 209(2) in bankruptcy, (2256) thereby leaving the question unanswered. Other indicia
of intent, however, suggest that ethical issues in bankruptcy should continue to be
governed by § 209. For instance, all discussion of bankruptcy matters is found in the
comments to § 209. (2257) Moreover, Comment b to § 201 specifically assumes that §
209 applies, rather than § 201, in "situations, not involving litigation, in which
significant impairment of a client's expectations of the lawyer's loyalty would be
similarly likely."(2258) Thus, even if the text of the Restatement does not mandate
treating bankruptcy proceedings as litigation matters, the commentary strongly
indicates that this should be the case.
Section 209 imposes much stricter ethical requirements on counsel than does
§ 201. (2259) As one commentator has observed, § 209 "contains a special, per se rule
regarding representation of clients that are adverse to each other in civil litigation."
This per se rule is grounded in the "underlying assumption that litigation involving
the assertion or defense of a claim between two clients always creates a 'substantial
risk' that the lawyer's representation of one client or the other will be 'materially and
adversely' affected by the simultaneous representation of both clients, even in
unrelated matters."(2260) The rationale for applying § 209 is as appropriate in
bankruptcy cases as it is in civil litigation, and militates retaining a strict
disinterestedness requirement. Concerns that a lawyer may pursue a case less
effectively out of deference to another client(2261) are as realistic in bankruptcy as they
are elsewhere, and similarly affect public confidence in the integrity of the legal
system. (2262)
What is relevant for current purposes is that under § 209, a lawyer may
not represent one client in asserting or defending a claim against another current
client, even if the simultaneous representation is in connection with unrelated
matters.
The traditionally-applied stricter requirements of § 209 are more suitable to
bankruptcy cases then the more liberal rules in § 201. The contrary view, however,
is apparently rooted in a belief that only adversary and contested matters in a
bankruptcy case rise to a level sufficient to implicate the safeguards of § 209, and that
most matters are administrative in nature or do not result in direct conflicts between
the debtor and individual parties.
This artificial distinction between "litigation" and "administrative" functions,
however, is untenable in a typical bankruptcy case. The general administration of the
estate and particularly the development and confirmation of a plan frequently involve
significant controversies that can have the greatest practical impact on the outcome
of a claim. While these issues do not technically qualify as "contested" or
"adversary" proceedings, they are adversarial in nature, are often more important to
the case's outcome than formal contested proceedings, and are interwoven
throughout the "administrative" proceedings of the case. (2263) Moreover, if counsel
were deemed to be disinterested for purposes of an "administrative" proceeding but
not for a contested matter, this would create an incentive for debtor's counsel to settle
or otherwise avoid such issues before they rise to the level of a contested matter from
which counsel might be disqualified. The results of these settlements or other
conflict-avoidance strategies by debtor's counsel, of course, would be funded by
other creditors who lack the leverage of a credible threat to disqualify debtor's
counsel. As a result, many of bankruptcy's routine "administrative" proceedings
create the same tensions as formal litigation, and should be governed by the same
ethical rules.
The ABA's Model Rules of Professional Conduct (the "Model Rules") and
the Model Code of Professional Conduct (the "Model Code") similarly provide no
concrete guidance for resolving the unusual tensions which arise in a bankruptcy
proceeding. Upon review, however, it is evident that the traditional disinterestedness
standard is more consistent with the ethics rules of many states, and ensures that
lawyers are in compliance with both the bankruptcy and state law.
Under Model Rule 1.7(a), representation in litigation matters is not permitted
if the representation will have any adverse affect on the other client. Similarly, the
Model Code forbids representation of multiple clients in litigation with "differing"
interests, and rarely permits representing in litigation multiple clients with potentially
differing interests, unless all relevant parties consent. Moreover, under Canon 9 of
the Model Code, an attorney is required to "avoid[] even the appearance of
impropriety." Although Canon 9 has been replaced by the Model Rules, it remains
effective in the approximately 15 states which continue to follow the Model Code.
It may be argued that the application of these rules to bankruptcy practitioners
is unwise, or that the rules themselves are unwise (such as the Model Code's
appearance of impropriety standards). Perhaps the disinterestedness standard is in
some cases overbroad. For now, both sets of standards are harmonious.
III. Competing Considerations
The First Proposal claimed four advantages would result from eliminating the
disinterestedness requirement for a debtor-in-possession's counsel: (1) it corrected
a perceived "drafting error" in the Code, (2) it protected debtors' freedom to choose
their counsel, (3) it allowed debtors to draw upon a larger pool of specialized counsel
with sufficient resources for undertaking complex representation, and (4) it would be
applied uniformly, as the existing standard had not been, and thereby reduce
litigation.
The first of these perceived advantages rests on what can only be an
inaccurate perception. The history of the bankruptcy system during the period 1890-1939, (2264) together with the legislative history of the 1978 Code, tends to show that
Congress consciously implemented broader application of disinterestedness. This
was no "drafting error." Application of disinterestedness to debtors' attorneys is a
sensible restraint when under Code § 1107(a), "a debtor in possession [stands] in the
shoes of a trustee in every way."(2265)
The second "advantage" is inconsistent with the reality of bankruptcy
practice. In bankruptcy, the debtor and its counsel owe fiduciary duties to the estate
and its creditors. As such, a debtor's attorney is not free to act only to advance his
client's interests; rather, he must serve the policy and goals of the bankruptcy system
as diligently as he serves his debtor-client. So long as the debtor is choosing among
disinterested counsel, the debtor's choice should be honored. However, debtors
should not be free to retain counsel-even their own pre-petition counsel-when those
counsel will be required to serve conflicting interests.
The third alleged benefit solves a problem(2266) that no one has empirically
proved to exist. No one presented evidence showing a shortage of capable debtors'
counsel, harm to debtors or the system resulting from disqualification of interested
counsel, or that any such unproven harm would outweigh the policies favoring
impartial counsel. Nor has any evidence demonstrated that interested counsel who
wish to serve in spite of conflicts are unable to secure conflict waivers upon
disclosure to affected clients. If such waivers are, in fact, difficult to obtain, the
logical conclusion is that the conflict is indeed important, influential, and potentially
harmful, and should be avoided, not ignored. The Leslie Fay case(2267) is an instructive
example of the problems conflicts can cause.
The final alleged advantage of the First Proposal is reduction of litigation and
inconsistent standards, which is to be achieved by substituting a test of "material
adverse interest" for the current disinterestedness standard. As set forth above, the
current standard serves very important policy goals and prevents real problems from
arising. It is apparent that uniformity attained by eliminating the disinterestedness
requirement would not achieve the desired ethical or practical result. It is not
apparent that the material adverse interest standard would lead to more uniform case
law. Further, the arena of litigation would shift from the appointment-of-counsel
stage of the bankruptcy case to the time and place when a party feels he has been
harmed by an attorney's divided loyalties. As either standard seems destined to
foster litigation, then it seems better that it take place at the threshold of a case
instead of far into its progress.
IV. Discussion of Recommendation
The foregoing considerations convinced the Commission that the general
requirement of disinterestedness should be retained. Nonetheless, one discrete
problem was identified for which it was concluded that a specific remedy would be
desirable and feasible. The Commission recommends (the "Recommendation") that
§ 1107(b) be amended to read as follows (suggested new text underlined):
(b) Notwithstanding § 327(a) of this title, a person is not disqualified for employment under § 327 of this title by a debtor in possession solely because of such person's employment by or representation of the debtor before the commencement of the case, or solely because of such person's being the holder of an insubstantial unsecured claim against or equity interest in the debtor.
The purpose of this change is to facilitate the representation of Chapter 11
debtors when the professional sought to be employed by the debtor holds an
unsecured claim against or equity interest in the debtor that is, relative to other claims
or interests, insubstantial. (2268)
It was determined by the Commission that the purposes of the
disinterestedness requirement were not compromised by permitting a debtor in
possession to employ professionals who held an unsecured claim against the estate
or equity interest in the debtor, so long as that interest was insubstantial in amount
in relation to the other claims and interests present in the case. In such
circumstances, the interests of the professional are unlikely to diverge substantially
from the interests of other creditors and parties. Further, the professional is unlikely
to be influenced by such a relatively small claim or equity position in a manner which
would sacrifice the interests of the estate to the professional's private interests. It is
appropriate to exempt these conflicts from the reach of the disinterestedness
requirement.
The Recommendation will eliminate the overinclusive reach of the
disinterestedness requirement in the narrow situations described. Under § 1107(b),
the debtor in possession is permitted to retain prepetition counsel, but under §
101(14)(A) counsel is considered not to be disinterested when it remains unpaid for
prepetition services to the debtor. Debtor's counsel, however, often will have a claim
against the estate for unpaid fees and expenses incurred in the period preceding and
including the filing of bankruptcy. The definition's prohibition renders § 1107(b)
ineffective, as a practical matter, in many cases.
The courts have responded to this contradiction in an ad hoc fashion,
occasionally permitting representation only upon waiver by counsel of its prepetition
claim, or by authorizing another similar remedy. In practice, courts have held that
a prepetition claim disqualifies prepetition counsel from serving as counsel to the
debtor in possession unless the prepetition claim is solely the result of work done in
preparation for the bankruptcy filing. (2269) But this result is far from uniform.
Moreover, the distinction drawn between a general claim for services and services
incurred specifically in preparation for filing bankruptcy is artificial and unrealistic.
Because the Recommendation would not undermine the purposes of the
disinterestedness requirement and would also serve to resolve the anomaly between
§ 1107(b) and § 327, the Commission advocates amending § 1107(b) as indicated.
3.3.4 National Admission to Practice
Admission to practice in one bankruptcy court, usually by virtue of
being admitted to practice in the relevant United States District Court,
should entitle an attorney, on presentation of a certificate of admission
and good standing in another district court, to appear in the other
bankruptcy court without the need for any other admission procedure.
The Recommendation will not affect requirements (if any) to associate
with local counsel. Similarly, the Recommendation will not change the
requirements under state law governing the practice of law and the
maintenance of an office for the practice of law. The Recommendation
will only amend the local bankruptcy rule or practice requirements
governing special admission of attorneys to the bankruptcy court who
are otherwise not admitted to the bar of the district court in the district
where the bankruptcy court is located to appear in a particular
bankruptcy case.
Bankruptcy courts exist in the various federal judicial districts to supervise
cases commenced under the Bankruptcy Code and adjudicate disputes arising in such
cases. Attorneys who practice in the bankruptcy courts are required, at a minimum,
to be admitted to practice in their home districts. Often attorneys appear in
bankruptcy courts in other districts because their clients are involved as parties in
bankruptcy cases in such out-of-town districts. In order to represent such clients,
these attorneys must be admitted specially in the bankruptcy court where the case is
pending, usually on motion of a local attorney. These special admission
requirements are particularly burdensome on creditors (both private and government)
and their counsel who usually receive notice of bankruptcy proceedings with little
time to prepare and are often called to distant fora to defend claims and interests of
their clients.
Admission of nonresident(2270) attorneys to practice before a particular district
court generally applies to the bankruptcy court in that district. (2271) The local rules of
the bankruptcy court in each district (with a few exceptions) provide the admission
terms for attorneys to participate in a particular case when they are not admitted to
the district court bar of the district where the bankruptcy court is located. (2272) For the
most part, these local rules closely follow the admission rules for the district court
where the bankruptcy court is located. (2273) While these rules vary widely among the
ninety-four districts, there are distinct similarities that are worth noting. Virtually all
of the bankruptcy courts provide for either (1) admission to practice in a particular
case after meeting certain requirements (usually a certificate of good standing from
another federal court or the highest court in a state and the payment of a fee), or (2)
appearance by pro hac vice motion. Additionally, a considerable number of
bankruptcy courts waive the special admission requirements for attorneys
representing the United States government or any of its agencies when appearing in
a particular bankruptcy case. (2274) Very few bankruptcy courts, however, waive the
special admission provisions for nonresident state attorneys representing state
agencies(2275) outside the state in which the bankruptcy court sits. (2276)
Certain district courts and the bankruptcy courts within those districts admit
attorneys who are members of the bar in another U.S. court to appear in a particular
case. (2277) These districts generally require (1) the submission of a certificate of good
standing; (2) knowledge of, and consent to abide by, the disciplinary rules in the
district; and (3) payment of a fee. (2278) Most districts that admit attorneys based on
admission in other districts require the attorney to associate with local counsel. (2279)
The vast majority of bankruptcy courts have provisions for admission of a
nonresident attorney by pro hac vice motion. (2280) Despite its popularity, pro hac vice
admission has its limitations, which vary depending on the local requirements. These
limitations run the gamut. Some courts require foreign attorneys to associate with
local counsel to make the motion, while other courts require counsel to file a written
motion. Still other courts require counsel to file the motion with the clerk of the
district court, in addition some require payment of a fee, and others require the
motion to be filed three days prior to the hearing for which admission is requested.
A fair percentage of local bankruptcy rules waive the admission requirements
for attorneys appearing on behalf of the federal government and its agencies. (2281)
Very few local rules waive the admission requirements for attorneys representing
state governments, even for attorneys representing the state in which the bankruptcy
court sits.
The Commission has heard (both in testimony and by correspondence) that
creditor participation in bankruptcy cases is very low. Disenfranchisement of
creditors due to a bankruptcy filing in an inconvenient forum was the single most
cited reason in favor of a Proposal to amend the venue provisions of 28 U.S.C. §
1408(1). (2282) The cost to creditors of defending their claims in bankruptcy is also part
of the low creditor participation equation. While the Recommendation does not
eliminate the costs of participation, it does reduce some of the expense of defending
a claim in a nonlocal forum.
Bankruptcy proceedings also differ considerably from ordinary civil
litigation. "Appearance" by counsel in a bankruptcy proceeding (as opposed to a
district court proceeding) is often less formal and may be only for discrete hearings
on issues that may affect the interests of that counsel's client. Accordingly,
admission procedures and rules should conform to these differences. For example,
the Middle and Southern Districts of Florida distinguish between an attorney's
appearance for administrative bankruptcy matters and an appearance for contested
or adversary proceedings. (2283)
For many creditors, both private and government creditors, bankruptcy is a
national practice. They may retain legal representation from parts of the country
other than the judicial district where a case under the Bankruptcy Code is pending.
If an attorney has been admitted in any bankruptcy court pursuant to the rules of
admission for that court, which generally involves being admitted to practice in the
federal district court for that district, the admission should enable the attorney to
appear in any other bankruptcy court. This would obviate the need for special
admission or admission by pro hac vice motion. Under the Recommendation,
however, it would not, however, eliminate the need for local counsel where required
by local rule. The Recommendation also contemplates a Bankruptcy Code provision
requiring attorneys who appear under this provision to read the applicable local rules
and to submit to the disciplinary authority of the court where the case is pending.
National admission will also greatly assist attorneys who appear in
bankruptcy cases on behalf of government entities, particularly state governments.
Governmental entities are often brought into the bankruptcy court on short notice
(often in injunctive matters) and, accordingly, government attorneys have very little
time to coordinate admission with other attorneys in the district where the bankruptcy
case is pending. Government entities should be able to appear with the least
obstructions possible. National admission will streamline the appearance process for
governmental entities.
The Recommendation does not alter local counsel requirements. To the
extent that the local rules in a particular jurisdiction require the association of local
counsel to participate in a case, those requirements are not altered by the
Recommendation. The Recommendation eliminates special admission procedures
in an effort to reduce the costs of participating in a bankruptcy case. Increasing
creditor participation by reducing creditors' costs to participate in the bankruptcy
process is consistent with a number of the Commission's Proposals. In particular,
the proposal to eliminate place of incorporation as a permissible bankruptcy venue
will reduce creditor disenfranchisement due to a bankruptcy filing in a distant
forum. (2284)
Competing Considerations. The concept of nationwide admission is new and
might seem to impair the local autonomy of courts. It may also be seen, however
inappropriately, as a limitation of the supervisory control over attorneys by the courts
before whom attorneys practice. As demonstrated above, courts already admit
nonresident attorneys under a variety of requirements and still maintain disciplinary
control of bankruptcy proceedings. Some local courts presently charge a fee (often
about $75) for special admission which may be used for federal bar purposes, the fee
could be lost if there was nationwide admission. The Recommendation, however,
will reduce the participation costs for creditors and other parties in interest. The
beneficial result may be an increase in creditor participation.
3.3.5 Fee Examiners
The Bankruptcy Code should explicitly preclude the appointment of fee
examiners as an improper delegation of the court's duty to review and
award compensation under 11 U.S.C. § 330. The Recommendation does
not affect the court's authority under 11 U.S.C. § 1104(c) to appoint an
examiner to investigate and report on certain aspects of a Chapter 11
case, for example, a potential fraudulent transfer or a particularly
complicated claims estimation.(2285)
Fee examiners are generally appointed by bankruptcy judges to (a) review fee
applications of professionals retained under section 327 and (b) submit a report to the
court critiquing the professionals' fee applications. (2286) The vast majority of fee
examiners are appointed in large cases with multiple committees and, therefore, with
a large number of professionals retained by the estate under section 327. (2287) In large
cases, the responsibility to review the professionals' fee applications can be very
burdensome, especially if the professionals seek compensation on an interim
basis. (2288) Fee examiners are also appointed for their expertise in reviewing fee
applications. Most fee examiners utilize special computer programs to evaluate and
collate the fee data submitted by professionals.
There are no explicit provisions permitting the appointment of fee examiners
or providing for payment of compensation to them in cases under the Bankruptcy
Code. Courts that do utilize fee examiners tend to rely on two bases for their
appointment. Some bankruptcy courts appoint fee examiners on the theory that the
authority to do so exists under section 105. (2289) Other courts appoint them under
certain circumstances to "look after the interests of the Estate."(2290) The Recommendation concludes (1) that the appointment of fee examiners is
inappropriate and not sound policy, and (2) that the Bankruptcy Code should
expressly provide that fee examiners may not be appointed by the court.
Rationale. The Bankruptcy Code imposes the duty to review fee applications
on, among others, the bankruptcy court. (2291) Fee examiners, however, are appointed
by some courts to review fee applications and submit a report to the bankruptcy court
critiquing the professionals' fee applications. In this regard, fee examiners assume
a judicial function, akin to special masters, whose appointment is not permitted in
bankruptcy cases. (2292)
Under section 330, "reasonable compensation" is awarded for "actual" and
"necessary" services. Whether services were "necessary" is viewed at the time they
were rendered and not with the benefit of hindsight. (2293) Unlike the judge, the U.S.
trustee, or the creditors' committee, fee examiners are involved only in the fee
application portion of a case and do not participate in any other part of a Chapter 11
case. As a result, whether certain work was required and benefitted the estate is
examined after the fact, with the benefit of hindsight, which in itself is not a proper
criterion. The "amount of time" spent on a particular matter is of critical importance
in determining whether or not it is compensable. (2294) The necessity of the time spent
can only be fairly viewed at the time the services were rendered and not after the
fact. (2295)
In large Chapter 11 cases, fee examiners are appointed because judges feel
they do not have the time and sometimes do not have the desire to perform the
tedious task of reviewing fee applications. Irrespective of these reasons, bankruptcy
judges should not be able to delegate this portion of their independent obligation
imposed by the Code to review fee applications and oversee the professional fees in
a case. Moreover, fee examiners are appointed by the judge, arguably perpetuating
the same problems of cronyism that existed under the former Bankruptcy Act. The
Bankruptcy Code purposely removed any appointing power from the court and
placed it in the office of the U.S. trustee. The court may not appoint a trustee under
any of the chapters of the Code and may not appoint any members of an official
committee. Court appointment of a fee examiner directly contravenes established
Congressional policy.
The actual fee examiner process also runs counter to the requirements of
section 330 for a full and fair fee determination by the court. In practice, the fee
examiner process amounts to a negotiated fee reduction between the fee examiner
and the professional. The professional submits its application to the fee examiner
who reviews it and then sends a preliminary report on that professional's fees only
to that professional. The professional then answers any questions the fee examiner
may have and negotiates both the amount of the fee examiner's suggested discount
as well as the language of the fee examiner's report that will be filed with the court.
At the end of this process, the court is presented with a negotiated fee and a
consensual description of the professional's application. This process is in sharp
contrast to the direct fee application process to the court under the Bankruptcy Code
as well as according to the U.S. Trustee fee application guidelines. (2296)
Under the Recommendation, the judge, the U.S. trustee, and other
professionals should review the fee applications. Under the 1994 amendments, the
U.S. trustee should assist the court by fulfilling its statutory obligation to examine fee
applications and comment on them as it determines necessary. (2297) It is the role of the
U.S. trustee to review fee applications and the appointment of a fee examiner usurps
this role. (2298) The U.S. trustee should be the independent party to object to fee
applications, when necessary, and the judge should make the determination based on
that objection as well as any others. (2299) Fee examiners have become akin to special
masters or "pseudo-special masters" and, as such, the Bankruptcy Code should
preclude their appointment.
All interested parties, particularly the debtor in possession and all official
committees, have a responsibility to review all fee applications submitted to the
court. Greater compliance with this duty would alleviate the court's burden
significantly.
Competing Considerations. Fee examiners have principally been appointed
in large cases with multiple committees and professionals where the court carries a
heavy burden to review fee applications. As a result, it may be unrealistic to demand
that the court, the U.S. trustee, and other parties in interest carefully review each fee
application. It may be argued that in order to meet this obligation, the court should
be able to designate an independent party to review the fee applications and file a
report with the court. There are structural reasons, discussed above, why this
responsibility should not be delegated to a third party who has no other involvement
in the case. The responsibility to review fee applications is indeed a burden. The
Recommendation recognizes this burden, but instead of condoning the practice of
appointing fee examiners, places the burden with the U.S. trustee, parties in interest
and the court as envisioned under the Bankruptcy Code. (2300)
3.3.6 Attorney Referral Services
11 U.S.C. § 504 should be amended to permit an attorney compensated
out of a bankruptcy estate to remit a percentage of such compensation
to a bona fide, nonprofit, public service referral program. Such attorney
referral program must be operating in accordance with state laws and
ethical rules and guidelines governing referrals. The Recommendation
does not affect the requirement that all compensation arrangements be
disclosed in the application for retention under Fed. R. Bankr. P. 2014
and in the application for compensation under Fed. R. Bankr. P. 2016(a).
Local bar associations frequently sponsor nonprofit, public service attorney
referral services. An attorney referral service refers clients in search of legal counsel
to attorneys. Occasionally, these referral services are supported by bar association
dues. In order for these referral services to be self-funding, the American Bar
Association's House of Delegates adopted a rule that provides "a qualified service,
may, in addition to any referral fee, charge a fee calculated as a percentage of legal
fees earned by any lawyer panelist to whom the service has referred a matter."(2301) The ABA also noted
that ethics opinions have consistently held that a percentage fee program is a legitimate way for a referral service to generate income if: first, the funds collected through percentage fee funding are used
solely to defray the service's operating costs or for other public service programs and, second, attorneys to whom cases are referred are barred from charging more for their legal services to offset the fees they remit to the referral service. (2302)
The ABA has endorsed use of public service referral services under these
circumstances.
Collecting a percentage of an attorney's fee as a means of funding the referral
service, however, does not comport with certain provisions of the Bankruptcy Code.
Bankruptcy Code section 504 prohibits fee-splitting arrangements except under two
limited circumstances: (1) where a person is a partner or otherwise associated with
an individual compensated from an estate; or (2) where an estate-compensated
attorney for a creditor who filed an involuntary case under section 303 is assisted by
another attorney. These provisions preclude fee-splitting in the case of a lawyer
referral service that refers estate-compensated work to an attorney. In order to
address this problem, the American Bar Association ("ABA") adopted the following
resolution related to the payment of attorney referral fees at its meeting on February
3, 1997:
RESOLVED, That the American Bar Association urges the
amendment of the United States Bankruptcy Code, to allow an
attorney to remit a percentage fee awarded or received under the
Bankruptcy Code to a bona fide public service lawyer referral
program, operating in accordance with state or territorial laws
regulating lawyer referral services or the rules of professional
responsibility governing the acceptance of referrals.
The types of attorney referral services considered in the Recommendation are
those nonprofit services set up principally by state and local bar associations. This
type of arrangement is not a classic fee-splitting scenario where two attorneys have
an arrangement to share the fee. An attorney referral service under the
Recommendation is compensated from amounts paid to the attorney up to a limit in
exchange for referring the representation to the attorney. So long as the arrangement
with the referral service is disclosed (1) in the application for retention under Fed. R.
Bankr. P. 2014, and (2) in the application for compensation under Fed. R. Bankr. P.
2016(a), there should be no prohibition against the use of these types of referral
services in bankruptcy. The Recommendation facilitates the ability of judges and
clerks to refer pro se debtors seeking counsel to these types of services. Cottage
industry opportunities for abusive referral services are limited because only not-for-profit organizations are eligible under the Recommendation.
Competing Considerations. Some attorneys argue that there is no need for
this provision to assist low income debtors as these services are already available and
affordable. Attorneys who represent low-income clients are unable to charge very
much and may already donate a fair portion of their time to assist these types of
debtors. Requiring these types of attorneys to split their fees may deter them from
accepting referred cases. The Recommendation only permits a percentage payment
if the attorney accepts the referral and agrees to assist the client. The
Recommendation will have no effect on an attorney who chooses not to accept the
referral in the first instance.
Notes:
2111 11 U.S.C. § 507(a) (1) (1994) (ranking administrative expenses under section 503(b) as
the highest priority claim).
Return to text
2112 28 U.S.C. § 581 (1994). The remaining six judicial districts in North Carolina and Alabama do not have United States trustees. The Bankruptcy Administrator ("BA") system is responsible for bankruptcy administration in those districts. Section 302(d)(3)(I) of the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986 authorized the Judicial Conference of the United States to establish a bankruptcy administrator program. The BA system is part of the judicial branch under the Administrative Office of the U.S. Courts. Pub. L. No. 99-554, 100 Stat. 3088 (1986). The BA system is currently scheduled to opt-in to the U.S. trustee program no later than October 1, 2002. The Commission discussed the BA system, but does not make a recommendation.
Return to text
2113 28 U.S.C. § 586 (1994). Section 586 outlines the responsibilities of the United States
trustee.
Return to text
2114 11 U.S.C. § 307 (1994). The only restriction on a United States trustee under this section
is the inability to file a plan pursuant to section 1121(c).
Return to text
2115 28 U.S.C. § 589(a)(b) (1994)(listing the percentage of the fees collected in bankruptcy
cases pursuant to 28 U.S.C. § 1930 that are deposited in the United States Trustee System Fund).
Return to text
2116 See, e.g., 28 U.S.C. § 586(a)(1) & (b) (1994) (authorizing the U.S. trustee to appoint and
supervise panel and standing trustees). Panel trustees are appointed to supervise cases filed under
Chapter 7. 28 U.S.C. § 586(a)(1) (1994). Standing trustees are appointed to supervise cases filed
under Chapters 12 or 13. 28 U.S.C. § 586(b) (1994).
Return to text
2117 See 28 U.S.C. § 586(e)(1)(B) (1994) (allocating percentage payment to Chapter 12 and
13 standing trustees out of payments made under the debtor's plan); 11 U.S.C. § 326 (limiting the
compensation of Chapter 7 or Chapter 11 trustees to certain percentages of amounts disbursed or
turned over in the case).
Return to text
2118 See, e.g., 11 U.S.C. § 327(a) (1994) (requiring professionals retained by the estate to be
"disinterested" and have no "interest adverse to the estate"); 11 U.S.C. § 701(a)(1) (1994) (requiring
one "disinterested" member of the panel of private trustees to be appointed as interim trustee).
Return to text
2119 Compare 11 U.S.C. § 101(14)(E) (1994) (defining disinterestedness as one "who does
not have an interest materially adverse to the estate") with 11 U.S.C. § 327(a) (1994) (requiring that
professionals be both "disinterested" and not "hold or represent an interest adverse to the estate").
Return to text
2120 The Third, Sixth and Eighth Circuits as well as the Ninth Circuit Bankruptcy Appellate
Panel have all adopted per se interpretations of the disqualification provisions of section 327(a).
Michel v. Federated Dep't Stores, Inc. (In re Federated Dep't. Stores), 44 F.3d 1310, 1318 (6th Cir.
1995) (overruling lower courts' equitable approval of investment banker who did not meet
disinterestedness requirements of section 327(a)); United States Trustee v. Price Waterhouse (In re
Sharon Steel), 19 F.3d 138 (3d Cir. 1994) (finding that debtor's prepetition accounting firm was not
disinterested and could not be retained under section 327(a) where accounting firm held $875,000
unsecured claim); Michel v. Eagle-Picher Indus., Inc. (In re Eagle-Picher Indus., Inc.), 999 F.2d 969,
972 (6th Cir. 1993) (debtor's prepetition investment bank disqualified as not disinterested where
professional served as underwriter for outstanding securities of the debtor; court found that a
professional could be "not disinterested, yet without an adverse interest" requiring disqualification);
Childress v. Middleton Arms, L.P. (In re Middleton Arms, Ltd. Partnership), 934 F.2d 723 (6th Cir.
1991) (insider of debtor could not be retained as real estate broker; court found that a not disinterested
person could not be employed even if that person did not hold an interest adverse to the estate); Pierce
v. Aetna et al., 809 F.2d at 1362 (disqualifying attorney who held prepetition security interest as not
disinterested; recognizing that the attorney might not hold material adverse interest, but that "the
intent of the statute is clear; if a professional is a creditor, then that person is not disinterested"); First
Interstate Bank of Nevada, N.A. v. CIC Investment Corp., (In re CIC Investment Corp.), 175 B.R.
52 (B.A.P. 9th Cir. 1994) (professional was not disinterested where prepetition claim was secured by
debtor's property).
Numerous lower courts and one circuit court, however, have found that the statutory results
are illogical. These courts hold that unless the disinterested professional also holds a material adverse
interest, the fact that the professional is disinterested (as defined by section 101(14) will not, without
more, disqualify the professional. In re Martin, 817 F.2d 175, 180 (1st Cir. 1987) (upholding
mortgage on debtor's property in favor of attorneys; case remanded for inquiry into whether
"acceptance of the mortgage by [the attorneys] created either a meaningful incentive to act contrary
to the best interests of the estate and its sundry creditors -- an incentive sufficient to place those
parties at more than acceptable risk -- or the perception of one."); In re PHM Credit Corp., 110 B.R.
284, 288 (E.D. Mich. 1990) (applying equitable analysis to disinterestedness requirement; "[s]tatutes
should be interpreted to avoid unreasonable results whenever possible."); In re Microwave Prods. of
Am., Inc., 94 B.R. 971, 974-75 (Bankr. W. Tenn. 1989) (approving retention of public relations firm
who held prepetition claim); In re Viking Ranches, Inc., 89 B.R. 113 (Bankr. C.D. Cal. 1989)
(applying section 1107(b) as an exception to disinterestedness requirement unless material adverse
interest exists); In re Best W. Heritage Inn Partnership, 79 B.R. 736 (Bankr. E.D. Tenn. 1987)
(attorneys' prepetition claims did not result in per se disqualification; existence of material adverse
interest was only ground to disqualify firm);In re Heatron, 5 B.R. 703 (Bankr. W.D. Mo. 1980)
(authorizing retention of attorney who held prepetition unsecured claim; concluding "that an attorney
who has represented the debtor prior to the filing of the bankruptcy proceeding, who assisted in the
preparation of the petition and who is a major creditor, without more, does not have an interest
adverse to the debtor."). Return to text
2121 In the 1930s, various reports were submitted to Congress and the Judicial Conference
recommending the creation of a centralized supervisory body in the executive branch to relieve the
bankruptcy courts of their administrative responsibilities. The first reports was submitted by the
Sabath Committee. See HOUSE COMM. ON THE JUDICIARY, REPORT ON ADMINISTRATION OF
BANKRUPTCY ESTATES, 71st Cong., 3d Sess. (Comm. Print 1931). The Sabath Committee was
established by the Judiciary Committee. Its recommendations led directly to the Securities and
Exchange Commission's role in Chapter X cases.Hearings Before House Judiciary Committee on
H.R. 9 and H.R. 6963, 75th Cong., 1st Sess. 10 (1937).
Return to text
2122 REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES, H.R.
DOC. NO. 93-137, at 93 (1973) (hereinafter "COMMISSION REPORT").
Return to text
2123 The functions of all bankruptcy judges have changed since enactment of the Reform Act,
as their jurisdiction has been limited in light of the Supreme Court's opinion in Northern Pipeline
Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982).
Return to text
2124 To some extent, the requirement that a bankruptcy judge approve any matter that is not
contested by the parties or the trustee is an administrative function. It was suggested that after a
strong U.S. Trustee program or other public administrator is established nationally, it could be
charged with approving uncontested matters after taking account of the public interest, leaving the
judges to resolve only contested matters. While the Reform Act did not eliminate this judicial
oversight function, it did eliminate this portion of the judges' responsibility for initiating and
supervising administrative matters.
Return to text
2125 H.R. REP. NO. 95-595, at 88-89 (1977).
Return to text
2126 See COMMISSION REPORT, supra note 2122, at 103-56; P. FISH, THE POLITICS OF FEDERAL
JUDICIAL ADMINISTRATION (1973); Frank R. Kennedy, Restructuring Bankruptcy Administration: The
Proposals of the Commission on Bankruptcy Laws, 30 Bus. Law. 398, 401-405 (1975).
Return to text
2127 See H.R. REP. NO. 95-595, at 111 (1977).
Return to text
2128 Bankruptcy Reform Act of 1978, § 224, 28 U.S.C. § 581 (amended 1986).
Return to text
2129 Pub. L. No. 95-598, § 408(b), 92 Stat. 2687 (1978) (repealed 1986).
Return to text
2130 JYUST-82-C-001. The study included data collected in 20 federal judicial districts, and
an analysis of over 1500 bankruptcy cases. Abt Associates of Cambridge, MA was retained to
perform the study.
Return to text
2131 See Abt Associates, Inc., An Evaluation of the U.S. Trustee Pilot Program for
Bankruptcy Administration: Findings and Recommendations 280 (1983) (hereinafter cited as "Abt
Report").
Return to text
2132 Id. at 280.
Return to text
2133 See, e.g. letter from Leonard M. Rosen, Chairman, and Frank R. Kennedy, Secretary,
National Bankruptcy Conference, to Attorney General William French Smith (November 5, 1984).
Return to text
2134 See UNITED STATES DEP'T. OF JUSTICE, REPORT OF THE ATTORNEY GENERAL ON THE UNITED STATES TRUSTEE SYSTEM ESTABLISHED IN THE REFORM ACT OF 1978 FOR THE PERIOD OCTOBER 1, 1979 TO DECEMBER 31, 1983, 53-55 (1984).
Return to text
2135 Id. at 61-66.
Return to text
2136 Id. at 57-61.
Return to text
2137 Id. at 55-57. Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50
(1982).
Return to text
2138 U.S. GENERAL ACCOUNTING OFFICE, REPORT TO THE ATTORNEY GENERAL AND THE DIRECTOR, ADMINISTRATIVE OFFICE OF THE U.S. COURTS: GREATER OVERSIGHT OF BANKRUPTCY PROCESS NEEDED (1984).
Return to text
2139 The program was extended until September 30, 1984 by Pub. L. No. 98-166, 97 Stat.
1081 (1983). It was later extended until September 30, 1986 by Pub. L. No. 98-353, § 323, 98 Stat.
333 (1984).
Return to text
2140 See Abt Associates, Inc., An Evaluation of the U.S. Trustee Pilot Program for
Bankruptcy Administration: August 1985 Update (1985).
Return to text
2141 The U.S. Trustees Act of 1985: Hearings on H.R. 2660 and H.R. 3664 Before the
Subcomm. on Monopolies and Commercial Law of the House Comm. on the Judiciary, 99th Cong.,
1st & 2d Sess. 1-154 (1985 & 1986) (hereinafter cited as House Hearings).
Return to text
2142 All of the witnesses, except one, were current or former members of the U.S. Trustee program. The exception, Judge Jeremiah E. Berk, heard cases in both pilot and non-pilot districts.
Return to text
2143 See House Hearings supra note 2141, at 195-275 (testimony and prepared statements of
Arnold I. Burns, Associate Attorney General, DOJ; J. Ronald Trost, Esq., and Professor Lawrence
P. King of the National Bankruptcy Conference; Joseph Matz, Esq., and Arthur Ungerman, Esq. of
the Commercial Law League of America; Richard J. Leighton, Esq. of the U.S. Chamber of
Commerce; and the Hon. Cornelius Blackshear, bankruptcy judge for the Southern District of New
York).
Return to text
2144 See id. at 275-316 (testimony and prepared statement of the Hon. Robert E. DeMascio,
on behalf of the Judicial Conference of the U.S. and the Hon. G. William Brown, bankruptcy judge
for the Western District of Kentucky).
Return to text
2145 Id. at 65-66, 115-116, 204, 215-16, 279, 289-290. This issue, first raised by the DOJ,
had been considered and rejected by Congress in 1977 when it initially considered the placement of
the program. See H.R. REP. NO. 95-595, at 111, 114-15 (1977).
Return to text
2146 The U.S. Trustee System: Hearing Before the Subcomm. on Courts of the Senate Comm. on the Judiciary, 99th Cong., 2d Sess. (1986).
Return to text
2147 The witnesses who testified in favor of the program's expansion included Associate
Attorney General Arnold I. Burns and Thomas J. Stanton, Director and Counsel of the Executive
Office for U.S. Trustees for the DOJ; Professor Lawrence P. King of the National Bankruptcy
Conference; Richard K. Kaufman, Esq. of the National Association of Credit Management; Benjamin
Zion, Esq., and Hal Coskey, Esq. of the Commercial Law League of America; Robert Anderson, Esq.
of the National Association of Bankruptcy Trustees and the Hon. Robert Ginsberg, bankruptcy judge
for the Northern District of Illinois. Witnesses opposed to the continuation or expansion of the U.S.
Trustee system included the Hon. Robert DeMascio of the Judicial Conference; the Hon. James
Hancock, district judge for the Northern District of Alabama; the Hon. William Brown, bankruptcy
judge for the Western District of Kentucky; the Hon. T. Glover Roberts, bankruptcy judge for the
Southern District of Mississippi; the Hon. Thomas M. Moore, bankruptcy judge for the Eastern
District of North Carolina; the Hon. Algernon Butler, representing the North Carolina Bar
Association and Robert Sawdey, Esq., representing the Michigan State Bar Association.
Return to text
2148 See S. 443, 98th Cong. (1983).
Return to text
2149 132 CONG. REC. S4216 (daily ed. April 14, 1986); 132 CONG. REC. H1632 (daily ed.
April 8, 1986). See Letter from Leonidas Ralph Mecham, Director of the Administrative Office of
the U.S. Courts, to the Hon. Thomas P. O'Neill, Speaker of the House of Representatives (March 28,
1986), reprinted in House Hearings, supra, note 2141, at 461.
Return to text
2150 House Hearings, supra note 2141, at 434.
Return to text
2151 Id. at 438-441.
Return to text
2152 Id.
Return to text
2153 Id.
Return to text
2154 Id. at 447.
Return to text
2155 Id. at 440-41.
Return to text
2156 Id. at 447.
Return to text
2157 Id.
Return to text
2158 Amendment No. 1844, 132 CONG. REC. S5628 (daily ed. May 8, 1986) (introduced by Sen. Thurmond) This amendment added the text of S. 1961, with a modification by Sen. Heflin which
provided individual districts the opportunity to "opt out" of the U.S. Trustee program.
Return to text
2159 H.R. 2211, 99th Cong. (1985), 131 CONG. REC. H2530 (daily ed. April 24, 1985).
Return to text
2160 131 CONG. REC. 16,923 (1985). The bill's principal proponent was Rep. Mike Synar.
Return to text
2161 132 CONG. REC. S5643 (daily ed. May 8, 1986).
Return to text
2162 Id. at S11,907. The Senate conferees were Sens. Thurmond, Hatch, Grassley, DeConcini
and Heflin. 132 CONG. REC. H6488 (daily ed. Sept. 9, 1986). The House conferees were Reps.
Rodino, Edwards, Hughes, Synar, Glickman, Feighan, Fish, Shaw, Moorhead and Hyde.
Return to text
2163 See letter from Robert C. Vaughan, Jr., President, North Carolina Bar Association, to
Attorney General Edwin Meese (Jan. 16, 1986) (requesting that the judicial districts in North Carolina
be excluded from any legislation extending the U.S. Trustee program).
Return to text
2164 H.R. 2211, 99th Cong. § 255 (1986), 132 CONG. REC. S5632 (daily ed. May 8, 1986).
Return to text
2165 H.R. 2211, at § 255(d)(1).
Return to text
2166 Id. §§ 101 and 111(b).
Return to text
2167 Id. § 111(b).
Return to text
2168 Id. § 111(c) and (d).
Return to text
2169 Id.
Return to text
2170 See supra note 2112.
Return to text
2171 Pub. L. No. 99-554 , 100 Stat. 3088 (1986) ("1986 Amendments").
Return to text
2172 Id. § 111; 28 U.S.C. § 581. All federal judicial districts were placed under the
jurisdiction of the U.S. Trustee system except those in North Carolina and Alabama. Those two states
are to come under the program's jurisdiction in 2002, unless they opt to do so sooner.
Return to text
2173 Statement of Jean K. FitzSimon at Open Forum of the National Bankruptcy Review
Commission on the U. S. Trustee Program, February 20, 1997. Ms. FitzSimon serves as the Chair
of the American Bar Association Business Section Subcommittee on Bankruptcy Administration and
U.S. Trustees. Ms. FitzSimon was also a panel member of the National Academy of Public
Administration, Report on Alternative Structures for the United States Trustee Program and her
government service includes senior attorney-adviser to the Assistant Attorney General, Office of
Legal Policy and Acting United States Trustee for the Northern District of Illinois.
Return to text
2174 National Academy of Public Administration, Alternative Structures for the United States
Trustee Program; Report by a Panel of the National Academy of Public Administration (1995)
(hereinafter the NAPA Report). The NAPA panel was chaired by a former Commissioner of the
Internal Revenue Service. Panel members included bankruptcy as well as nonbankruptcy attorneys,
a former U.S. trustee, and members of the academic community.
Return to text
2175 Id. at 58.
Return to text
2176 The Bankruptcy Reform Act amended 28 U.S.C. § 506 to increase the number of
assistant attorneys general to ten. See Bankruptcy Reform Act of 1978, Pub. L. No. 95-593, § 218,
92 Stat. 2549 (1978).
Return to text
2177 NAPA Report, supra note 2174, at 65.
Return to text
2178 Id. at 54.
Return to text
2179 Id.
Return to text
2180 Id. at 58.
Return to text
2181 See 28 U.S.C. § 581(a)(4) & (21) (1994). Section 581(4) delineates a U.S. trustee region
that covers part of the fourth circuit and the District of Columbia. Section 581(21) delineates a U.S.
trustee region that covers parts of the first, third and eleventh circuits.
Return to text
2182 The term "trustee" or "bankruptcy trustee" when used throughout this Recommendation
means Chapter 7, Chapter 12, and Chapter 13 trustees. Chapter 7 trustees are the most prone to suit
due to the broad nature of their duties. The Recommendation addresses the personal liability standard
for Chapter 11 trustees for corporate debtors separately.
Return to text
2183 11 U.S.C. § 323 (1994). Section 959(a) of title 28 also permits a suit against a trustee,
without leave of the appointing court, for "any of their acts or transactions in carrying on business
connected with such property." 28 U.S.C. § 959(a) (1994).
Return to text
2184 28 U.S.C. § 959(b) (1994).
Return to text
2185 Section 959(b) generally has not been applied to liquidating trustees. See, e.g. Alabama
Surface Mining Comm'n v. N.P. Mining Inc. (In re N.P. Mining, Inc.), 963 F.2d 1449 (11th Cir.
1992); Missouri Dep't of Natural Resources v. Valley Steel Prods. Co. (In re Valley Steel Prods.
Co.), 157 B.R. 442 (Bankr. E.D. Mo. 1993).
Return to text
2186 2 COLLIER ON BANKRUPTCY ¶ 323.02, 323-6 (Lawrence P. King et al. eds. 15th ed. 1996)
citing In re FCX, Inc., 96 B.R. 49, 55 (Bankr. E.D.N.C. 1989); In re Charles George Reclamation
Trust, 30 B.R. 918, 921 (Bankr. D. Mass. 1983) (U.S. trustee unwilling to become Chapter 7 trustee);
In re Commercial Oil Service, Inc., 58 B.R. 311, 317 (Bankr. N.D. Ohio 1986); In re Mattiace Indus.,
Inc., 76 B.R. 44 (Bankr. E.D.N.Y. 1987) (Chapter 11 trustee).
Return to text
2187 See, e.g., Wisconsin v. Better Brite Plating, Inc., 466 N.W.2d 239 (Wis. Ct. App. 1991)
(state brought civil forfeiture action for clean-up costs against bankrupt corporation, former Chapter
11 trustee and former Chapter 7 trustee).
Return to text
2188 See, e.g., Reading Co. v. Brown, 391 U.S. 471 (1968) (trustee who was unable to obtain
insurance, except at exorbitant cost, was sued for damages resulting from fire on debtor's premises).
Return to text
2189 See, e.g., Nelson v. Bunker (In re XRX Inc.), 77 B.R. 797, 798 (Bankr. D. Nev. 1987)
(trustee sued for making erroneous disbursement of funds to pay administrative expenses).
Return to text
2190 See, e.g., Mosser v. Darrow, 341 U.S. 267 (1951) (trustee sued for damages resulting
from failure to supervise his employees who illicitly profited at estate's expense).
Return to text
2191 See Memorandum from David W. Allard on behalf of the National Association of Bankruptcy Trustees, Bankruptcy Trustees Should be Provided a Uniform Standard of Care
Governing Personal Liability - Support for a Revision of the United States Bankruptcy Code (April
1997).
Return to text
2192 See In re Gorski, 766 F.2d 723, 727 (2d Cir. 1985) (personal liability for mere
negligence); Red Carpet Corp. of Panama City Beach v. Miller, 708 F.2d 1576, 1578 (11th Cir. 1983)
(same); Hall v. Perry (In re Cochise College Park, Inc.), 703 F.2d 1339, 1357 (9th Cir. 1983) (same);
In re Tremont Corp., 143 B.R. 989 (Bankr. W.D.N.Y. 1992) (same); In re Consupak, Inc., 87 B.R.
529, 542 (Bankr. N.D. Ill. 1988) (same); In re Sturm, 121 B.R. 443 (Bankr. E.D. Pa. 1990) (court
reluctantly followed old Third Circuit precedent, but failed to find that the trustee had acted
negligently).
Return to text
2193 McGahren v. First Citizens Bank & Trust (In re Weiss), 111 F.3d 1159, 1168 (4th Cir.
1997) (trustee may be held personally liable for willful or intentional misconduct only); Lopez-Stubbe v. Rodriguez-Estrada (In re San Juan Hotel Corp.), 847 F.2d 931, 937 (1st Cir. 1988)(trustee
has personal liability only for willful and deliberate violations of the trustee's duties); In re Chicago
Pacific Corp., 773 F.2d 909, 929 (7th Cir. 1985)(same); United States v. Sapp, 641 F.2d 182, 185 (4th
Cir. 1981)(same); Sherr v. Winkler, 552 F.2d 1367 (10th Cir. 1977) (same).
Return to text
2194 Bennett v. Williams, 892 F.2d 822, 823 (9th Cir. 1989) (trustee has broad immunity for
acts taken within scope of authority, but still may be liable for intentional or negligent violations);
Yadkin Valley Bank & Trust v. McGee, 819 F.2d 74, 76 (4th Cir. 1987) (trustee has derived judicial
immunity); Lonneker Farms, Inc. v. Klobucher, 804 F.2d 1096, 1097 (9th Cir. 1986) (trustee entitled
to derived judicial immunity); Boullion v. McClanahan, 639 F.2d 213, 214 (5th Cir. 1981) (same).
Return to text
2195 341 U.S. 267 (1951).
Return to text
2196 Compare San Juan Hotel, 847 F.2d at 936 (surcharging trustee 3.4 million; citing Mosser
for proposition that a trustee may only be held for an intentional breach of fiduciary duty)with
Gorski, 766 F.2d at 726 (citing Mosser for proposition that trustee may be held personally liable for
negligent conduct).See also Central Transp., Inc. v. Roberts (In re Tucker Freight Lines, Inc.), 62
B.R. 213, 217 (Bankr. W.D. Mich. 1986) (listing divergent Mosser authorities); James I. Shepard,
Damage Control or the Art of Avoiding Personal Liability 3 (1996) ("Mosser v. Darrow is cited
almost exclusively as the font of all authority on the subject of trustees' breach of fiduciary duty.").
Return to text
2197 This risk is particularly acute where possible environmental liability exists:
It may seem to impose a hardship upon the trustee that he should be held
personally liable, and it is arguable that where he is not at fault he should
be liable only to the extent to which he can obtain indemnity out of the
trust estate. On the other hand, there is no reason why the victim of the
tort should be denied relief merely because the estate is insufficient to
indemnify the trustee. The risk of personal liability in tort is a risk that
the trustee runs in undertaking the administration of the trust. Ordinarily
he can protect himself by taking out liability insurance and paying
premiums out of the trust estate.
Charles F. Lettow & Joyce E. McCarty, Courts, Congress Address Potential Superfund Liability of
Fiduciaries, 13 No. 8 Banking Policy Report, *7 (April 18, 1994) (citing 3A Scott on Trusts § 264 (4th ed. 1988)). Return to text
2198 See, e.g., W. PAGE KEETON ET AL., PROSSER AND KEETON ON TORTS 209, 212 (5th ed.
1984) (defining gross negligence as "a failure to exercise even that care which a careless person
would use. Several courts, however, dissatisfied with a term so nebulous, and struggling to assign
some more or less definite point of reference to it, have construed gross negligence as requiring
willful, wanton, or reckless misconduct, or such utter lack of care as will be evidence thereof --
sometimes on the ground that this must necessarily have been the intent of the legislature."); Leite v.
City of Providence, 463 F. Supp. 585, 591 (D.R.I. 1978) (distinguishing ordinary and gross
negligence in that "one requires only a showing of unreasonableness while the other demands
evidence of near recklessness or shockingly unjustified and unreasonable action").
Return to text
2199 See, e.g., Potter v. Pohlad, 560 N.W.2d 389, 392 (Minn. Ct. App. 1997) ("Delaware
courts have repeatedly defined gross negligence as 'reckless indifference to or a deliberate disregard'
. . . or actions which are 'without the bounds of reason.'" citing Smith v. Van Gorkum, 488 A.2d 858,
873 n.13 (Del. 1985)).
Return to text
2200 Bennett v. Williams, 892 F.2d 822, 823 (9th Cir. 1989) (trustee has broad immunity for
acts taken within scope of authority, but still may be liable for intentional or negligent violations);
Yadkin Valley Bank & Trust v. McGee, 819 F.2d 74, 76 (4th Cir. 1987)(trustee has derived judicial
immunity); Boullion v. McClanahan, 639 F.2d 213, 214 (5th Cir. 1981), Lonneker Farms, Inc. v.
Klobucher, 804 F.2d 1096, 1097 (9th Cir. 1986)(trustee entitled to derived judicial immunity).
Return to text
2201 Hon. Susan Pierson Sonderby & Lisa Ramsden, Current Developments:
Trustees/Examiners and U.S. Trustees Liability/Immunity, 617 PLI/Comm 893, 903 (April-June
1992) ("The courts consistently grant the trustee immunity for business judgments provided the
trustee was acting within lawful authority pursuant to court order or other statutory duty. If the trustee
claims he was acting pursuant to court order, then the order must have been granted following full
disclosure and notice. A trustee will also not be held liable for the negligence of agents unless the
trustee negligently supervised the agents.").
Return to text
2202 See, e.g., Gregory v. United States Bankruptcy Court, 942 F.2d 1498, 1500 n.1 (10th Cir.
1991) ("Absolute quasijudicial immunity for a lawyer serving as a trustee and merely executing the
bankruptcy judge's orders concerning the collection and disposition of estate property is essential for
the efficient functioning of the bankruptcy court.")cert. denied, 504 U.S. 941 (1992).
Return to text
2203 One recommendation to the Commission cited "the 'militia movement' and similar anti-government groups" as creating "an environment which encourages litigation whenever anyone is
disappointed by the outcome of a case." Henry C. Seals, Trustees Need Relief, Suggestions for the
National Bankruptcy Review Commission, 4 Am. Bankr. Inst. L. REV. 548 (1995) (recommending
that trustees be given relief from these nuisance suits with "legislation specifying the scope and extent
of their immunity.").
Return to text
2204 See, e.g., Gordon v. Bunker (In re XRX, Inc.), 77 B.R. 797, 798 (Bankr. D. Nev. 1987)
(trustee has judicial immunity for acting pursuant to court order and making erroneous disbursement
to administrative expense creditor); Weissman v. Hassett, 47 B.R. 462, 466 (Bankr. S.D.N.Y. 1985)
(dismissing action against trustee for damages arising out of preparation and dissemination of report
on debtor's possible fraud; "[j]ust as receivers and trustees are immune from suit for actions taken
to assemble a bankruptcy estate's assets, so too a reorganization trustee should be immune for an
investigation and report furthering the same purposes.").
Return to text
2205 Allard, supra note 2191, at 4-5.
Return to text
2206 Mosser v. Darrow, 71 S. Ct. 680, 683 (1951) ("The practice is well established by which
trustees seek instructions from the court, given upon notice to creditors and interested parties, as to
matters which involve difficult questions of judgment. . . . It is hardly probable that a candid
disclosure to creditors, to the court, and to interested parties would have resulted in instructions to
have pursued this course; but had it been authorized, at least the assenting creditors might have found
themselves estopped to question the transaction.").
Return to text
2207 In re Sundance Corp., 149 B.R. 641, 654-55 (Bankr. E.D. Wash. 1993).
Return to text
2208 Id.
Return to text
2209 Id.
Return to text
2210 Id.
Return to text
2211 Concern was expressed that courts may refuse to enter orders of this type if no contested
matter is involved. See Letter of David W. Allard to Elizabeth Warren 2 (September 26, 1997) ("the
bankruptcy court is no longer involved in the administration of cases under the Code and is available
only to resolve disputes in contested matters. Thus, 'comfort orders' will not be permitted.").
Return to text
2212 "The potential for personal liability of the trustee is nowhere more graphically illustrated than in the 'hazardous waste' cases." Irving Sulmeyer, 1995 Collier Handbook for Trustees and
Debtors in Possession, § 4.08, 4-16.
Return to text
2213 In re Sundance Corp., 149 B.R. 641 (Bankr. E.D. Wash. 1993).
Return to text
2214 Id. at 649. At the time the Chapter 11 petition was filed, the state receiver was permitted to continue in possession, under the control of the bankruptcy court under section 543(d).
Return to text
2215 Id. at 647-48.
Return to text
2216 Id. at 652. The Sundance court agreed with State of Wisconsin v. Better Brite Plates,
Inc., 483 N.W.2d 574, 582 (1992) (concluding that a violation of state law may not necessarily be
outside the scope of a receiver's authority).
Return to text
2217 The Asset Conservation, Lender Liability, and Deposit Insurance Protection Act of 1996,
Pub. L. No. 104-208, 110 Stat. 1344 (codified at 42 U.S.C. §§ 6991b(h), 9601(20) & 9607). The Act
clarifies the liability of lenders and fiduciaries for hazardous waste clean-up costs. Specifically,
Congress added section 9607(n)(1) which limits a fiduciary's liability to the assets held as a fiduciary.
110 Stat. § 107 at 1345. The Act does not protect a fiduciary whose negligence causes or contributes
to the hazardous or threatened release. 42 U.S.C. § 9607(n)(3). For a complete discussion of the
amendments see Baxter Dunaway & Andrew C. Cooper, Good News for Lenders and Fiduciaries
Under Superfund, 11 PROB. & PROP. 49 (June 1997).
Return to text
2218 Shepard, supra note 2196, at 26 ("'A representative of a person or an estate (except a
trustee acting under title 11) paying any part of a debt of the person or estate before paying a claim
of the government is liable to the extent of the payment for unpaid claims of the government.'" 31
U.S.C. § 3713(b) (1996) (emphasis supplied); The Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, § 322(b), 92 Stat. 2679 (1978)).
Return to text
2219 Shepard, supra note 2196, at 27.
Return to text
2220 26 U.S.C. § 6672(a) (1996).See also, In re San Juan Hotel Corp., 847 F.2d 931, 937
n.37 (1st Cir. 1988); In re Joplin, 882 F.2d 1507 (10th Cir. 1989).
Return to text
2221 Sulmeyer, supra note 2212, at ¶ 4.09, 4-17 (citing United States v. Sampsell, 266 F.2d
631 (9th Cir.), cert. denied, 105 S. Ct. 2707 (1959)).
Return to text
2222 11 U.S.C. § 505(b) (1994)(outlining the procedure to determine a tax liability of the estate and gain a discharge from the liability associated with the tax).
Return to text
2223 See Allard, supra note 2211.
Return to text
2224 Id. at 3.
Return to text
2225 341 U.S. 267 (1951).
Return to text
2226 Id. at 269.
Return to text
2227 Id. at 275.
Return to text
2228 Id. at 270.
Return to text
2229 Id. at 272.
Return to text
2230 Id. at 273 (quoting Mosser v. Darrow, 184 F.2d 1, 8 (1950)).
Return to text
2231 Id. at 273-74.
Return to text
2232 Id. at 274.
Return to text
2233 In discussing the trustee's intent, the Mosser Court stated
In fairness to the trustee, it is to be noted that there is no hint or proof that
he has been corrupt or that he has any interest, present or future, in the
profits he has permitted these employees to make. For all that appears, he
was simply misled into thinking these persons indispensable, but he
entered into an arrangement which courts cannot sanction unless they are
to open the door to practices which would demoralize trusteeships and
discredit bankruptcy administration.
Id. at 275. Return to text
2234 See In re Chicago Art Glass, Inc., 155 B.R. 180, 187 (Bankr. N.D. Ill. 1993) ("The basis
for imposing liability on a trustee who improperly administers a bankruptcy estate is found in the
trustee's status as fiduciary.... Therefore, bankruptcy trustees must act with reasonable care in
discharging their statutory duties."). Chapter 7 trustees' statutory duties include the duty to (1)
collect and reduce the property of the estate to money and close the estate as expeditiously as is
compatible with the best interests of parties in interest; (2) be accountable for all property received;
(3) investigate the financial affairs of the debtor; (4) examine proofs of claim where useful and object
to the allowance of any claim that is improper; and (5)oppose the discharge of the debtor if advisable.
11 U.S.C. § 704 (1994).
Return to text
2235 11 U.S.C. § 101(14)(E) (emphasis added).
Return to text
2236 See 2 COLLIER ON BANKRUPTCY at ¶ 327.03, p. 327-31 (Lawrence P. King et al. eds. 15th ed. 1996) (citing cases).
Return to text
2237 Id. at p. 327-48 (footnote omitted).
Return to text
2238 Id. See also In re Consolidated Bancshares, Inc., 785 F.2d 1249, 1256 (5th Cir. 1986)
Return to text
2239 See COLLIER ON BANKRUPTCY at ¶ 327.03, p. 327-27.
Return to text
2240 Id. at p. 327-29.
Return to text
2241 COLLIER ON BANKRUPTCY at ¶ 327.03, p. 327-29 (noting that this requirement "effects a change from prior law").
Return to text
2242 Id. at 327-33.
Return to text
2243 Consolidated Bancshares, 785 F.2d at 1256, n.6 (citing In re Cropper Co., 35 B.R. 625, 629 (Bankr. M.D. Ga. 1983)).
Return to text
2244 Id. (citing In re Philadelphia Athletic Club, Inc., 20 B.R. 328, 334 (E.D. Pa. 1982)).
Return to text
2245 Heightened standards of disinterestedness are required in other areas of law where particular public policy and fiduciary concerns make higher-than-usual standards necessary. See, e.g.,
Securities Investor Protection Act of 1970, 15 U.S.C. § 78eee(B)(6); see also In re Blinder, Robinson
& Co., 131 B.R. 872, 878 (D. Colo. 1991).
Return to text
2246 COLLIER ON BANKRUPTCY at ¶ 327.03, p. 327-51. The treatise goes on to argue caution
in the application of § 101(14)(E) in a prophylactic manner so as not to disqualify professionals on
the basis of "[r]elationships remote from the instant case which do not involve confidential
information." This qualification, however, does not mitigate the danger of "conflicting loyalties" that
might arise from direct and indirect pressures on even the most ethical lawyers.
Return to text
2247 In re Rusty Jones, Inc., 134 B.R. 321, 333 (Bankr. N.D. Ill. 1991).
Return to text
2248 See Todd J. Zywicki, Mend It, Don't End It: The Case for Retaining the Disinterestedness for Debtor in Possession's Professionals, 18 MISS. COL. L. REV. (forthcoming 1998).
Return to text
2249 In re Chas. A. Stevens & Co., 105 B.R. 866, 872 (Bankr. N.D. Ill. 1989).
Return to text
2250 See R. Craig Smith, Note, Conflicts of Interest under the Bankruptcy Code: A Proposal
to Increase Confidence in the Bankruptcy System, 8 GEO. J. LEGAL ETHICS 1045, 1046 (1995)
(describing several articles in the New York Times and Wall Street Journal reporting on the
disqualification debate in the Leslie Fay case and "suggesting an unseemly connection between the
[disqualified law firm's] success and their repeated conflicts violations.").
Return to text
2251 Woods v. City Nat'l Bank & Trust, 312 U.S. 262, 268 (1941).
Return to text
2252 Id.
Return to text
2253 The difficulties of securing conflicts waivers in large bankruptcy cases are discussed below.
Return to text
2254 RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS (Proposed Final Draft No. 1, March 29, 1996).
Return to text
2255 See Letter of Susan M. Freeman to National Bankruptcy Review Commission 6 (August
9, 1997) ("The initial drafts of the Restatement failed to address bankruptcy cases, leaving to conjecture whether § 209 governing civil litigation applied to the entirety of bankruptcy cases or only to litigated matters within such cases."). Section 209 provides:
§209. Representing Parties with Conflicting Interests In Civil Litigation
Unless all affected clients consent to the representation under the limitations and conditions provided in § 202, a lawyer in civil litigation may not:
2256 Proposed Text on Bankruptcy-Related Issues in § 209 Restatement of the Law Governing Lawyers (Draft, October 31, 1996).
Return to text
2257 See RESTATEMENT § 209, Comment d(iii) (Complex and multi-party litigation)
(discussing conflicts of interest in bankruptcy); Id. Reporter's Note to Comment d(iii) (Complex and
multi-party litigation) (citing cases discussing conflicts of interest in bankruptcy).
Return to text
2258 RESTATEMENT § 201, Comment (b) (Rationale).
Return to text
2259 Section 201 defines a conflict of interest as "a substantial risk that the lawyer's
representation of the client would be materially and adversely affected by the lawyer's own interest
or by the lawyer's duties to another current client, a former client, or a third person." If the
representation of a client would give rise to such a conflict of interest, then counsel is forbidden to
undertake such representation absent consent by "all affected clients and other necessary persons."
Return to text
2260 "Ethical Considerations for Bankruptcy Professionals" Questions Regarding Impact of
Proposed American Law Institute Restatement of the Law Governing Lawyers at 2-3.
Return to text
2261 See RESTATEMENT § 209, comment e (Suing present client in unrelated matter).
Return to text
2262 See RESTATEMENT § 209, comment c (Clients aligned in opposition to each other).
Return to text
2263 Even a confirmed plan is treated as a judgment which is then binding all creditors and
parties in interest.
Return to text
2264 See H.R. REP. NO. 95-595, at 95-98 (1977).
Return to text
2265 Id., at 404; H.R. REP. NO. 95-989, at 116 (1978); COLLIER ON BANKRUPTCY at ¶ 327.03,
p. 327-94 n.3 (citing In re Urrutia, 114 B.R. 342, 344 (D.P.R. 1990)).
Return to text
2266 As one notable commentator has asserted:
Past experience has shown that in large Chapter 11 reorganization cases with widespread creditor interests, it has become increasingly difficult to obtain the
services of competent counsel with offices sufficiently staffed to handle all of the
varied legal services required in the case, who could meet the strict requirements
of "disinterestedness."
COLLIER ON BANKRUPTCY at ¶ 327.03, p. 327-76-77.
Return to text
2267 In re The Leslie Fay Companies, 175 B.R. 525 (Bankr. S.D. N.Y. 1994).
Return to text
2268 See Memorandum from Commissioner Edith H. Jones to Susan Jensen-Conklin, re:
Disinterestedness/Conflicts of Interest (July 18, 1997) (ballot of Commissioners to vote on the
Recommendation).
Return to text
2269 See John D. Penn & Stacey Jernigan, Survey of the Law: Disqualification of Professionals
Having Prepetition Claims, in 1996-1997 ANN. SURVEY OF BANKR. L. 167, 168 (William L. Norton,
Jr., ed. 1996).
Return to text
2270 The term "nonresident" is used throughout this Recommendation to mean an attorney (i)
who is not a resident of the state in which the bankruptcy court sits, and (ii) who has not been
admitted to the district court bar in the relevant district.
Return to text
2271 See, e.g., Bankr. Ct. S.D.N.Y. LBR 2090-1(a) ("An attorney who may practice in the
District Court pursuant to General Rule 2(a) and (b) of the District Rules may practice in this
Court."); Bankr. Ct. D. MD. 4(a) ("except as otherwise provided, ... only members of the Bar of the
District Court may appear as counsel.").
Return to text
2272 The local bankruptcy rules that do not provide for the admission of nonresident attorneys
generally incorporate by reference the local rule of the district court. See, e.g., Bankr. D. Conn. Local
Rule 2 ("Only persons admitted to practice in the United States District Court for the District of
Connecticut or admitted as visiting lawyers pursuant to the Local Rules of Civil Procedure shall
practice in the Bankruptcy Court.").
Return to text
2273 The local bankruptcy rules often refer as well as conform to the district rule governing
admission of attorneys.See, e.g., Bankr. Ct. N.D. Fla. Rule 106 A ("Except as provided herein,
Local Rule 11.1 of the United States District Court for the Northern District of Florida governs the
admission and appearance of nonresident attorneys before the Bankruptcy Court."); Bankr. Ct. N.D.
W. Va. Rule 5.205(a) (adopting the applicable district court's rule governing admission of
nonresident attorneys).
Return to text
2274 See notes 2277-79 and accompanying text, infra.
Return to text
2275 See Bankr. Ct. N.D. Ill. Local Rule 600(c) (waiving the trial bar admission requirements
for "the attorney general or other highest legal officer of any state").
Return to text
2276 Some courts, however, waive admission requirements for attorneys appearing on behalf
of the state in which the bankruptcy court sits. See, e.g., Bankr. N.D. Ill. Local Rule 600(C) (waiving
the trial bar admission requirements for, among others, "the state's attorney of any county in the State
of Illinois."); Bankr. S.D. Fla. Local Rule 910(F) (waiving admission requirement for attorney
appearing on behalf of the state of Florida).
Return to text
2277 Bankr. D. Ariz. (admitted to practice in any federal court); Bankr. E.D. Ark. (member
of bar in state of residence and admitted in any other federal court); Bankr. D. Conn. (same); Bankr.
D. Mont. (same); Bankr. W.D. Pa. (admitted in U.S. Supreme Court or any district court); Bankr. E
& S.D.N.Y. (admitted in district court in N.J., Conn. or Vt. and state bar of relevant district court);
Bankr. S.D. Tex. (admitted in any district court); Bankr. D. Vt. (admitted in any district court within
the First or Second Circuits).
Return to text
2278 See, e.g., Bankr. D. Ariz. (submit application attesting to having read local disciplinary
rules, attach certificate of good standing, and pay $50 fee); Bankr. D. Conn. (member of bar must
sponsor visiting attorney's admission; must be a member in good standing and attorney nor any
member of attorney's firm can have been denied admission to bar or disciplined under local rule 3;
and include $25 fee).
Return to text
2279 In Connecticut, for example, the sponsoring attorney may be excused from further
attendance in court upon granting of the motion to admit a non-resident attorney. Despite being
excused from attending hearings, the sponsoring attorney is not excused from any other obligation
of an appearing attorney. D. Conn. Rule 2(d).
Return to text
2280 In fact, a study done by the Federal Judicial Center found that ninety out of ninety-four
(96%) of the federal districts permit pro hac vice appearances. The four districts that do not have
these provisions (D. Ariz., E.D. Mich., W.D. Pa., & E.D. Wis.) have adopted alternative admissions
procedures that make pro hac vice provisions unnecessary. See Marie Cordisco, Eligibility
Requirements for, and Restrictions on, Practice Before the Federal District Courts, Federal Judicial
Center (Nov. 7, 1995).
Return to text
2281 See, e.g., Bankr. N.D. Ala. Local Rule 83.1 (waiving admission requirement for federal
government attorneys); Bankr. S.D. Ala. Local Rule 3 (waiving pro hac vice requirement for federal
government attorneys but requiring written certification that attorney read local rules); Bankr. D. Ak.
(no pro hac vice requirements for federal government attorneys); Bankr. M.D. Fla. Local Rule 1.07(b)
(same); Bankr. D. Idaho Local Rule 105(a) (same); Bankr. W.D. Mo. Local Rule 9.010 (same).
Return to text
2282 The Commission received numerous letters supporting an amendment to the venue
provisions of 28 U.S.C. § 1408(1) to eliminate place of incorporation as a permissible venue. Many
of these letters cited creditor disenfranchisement and the cost of defending a claim in a distant forum
as the reason for low creditor participation. National Bankruptcy Review Commission Database,
Jurisdiction and Procedure, Venue (1997).
Return to text
2283 See Bankr. M.D. Fla. Local Rule 1.07(b) (providing that an attorney residing outside the
state of Florida and not admitted to the district court may appear without special admission in the
following circumstances: 1. Filing a notice of appearance and a request for notices; 2. Preparation and
filing of a proof of claim; 3. Attending and participating in the § 341 meeting; and 4. "[A]ttendance
and representation of a creditor at a hearing that has been noticed to all creditors generally except the
representation of a party in a contested matter or adversary proceeding.").
Return to text
2284 See Commission Recommendation 3.1.4 to Amend Venue Provisions of 28 U.S.C. § 1408.
Return to text
2285 See, e.g., In re Columbia Gas System, Inc., Case Nos. 91-803, 91-804 (Bankr. D. Del.)
(court appointed examiner to evaluate complicated UCC oil and gas claims estimation issues).
Return to text
2286 See In re Maruko, Inc., 160 B.R. 633, 637 (Bankr. S.D. Cal. 1993) (describing fee
examiner's duties).
Return to text
2287 In re Columbus Mortgage and Loan Corp. of Rhode Island, 155 B.R. 297, 298 (Bankr.
D. R.I. 1993) ("In the majority of cases in this jurisdiction, however, the size of the case and shortage
of funds in the first place, rules out the option of special counsel or the independent fee examiner,
leaving the issue, again, with the Court.").
Return to text
2288 Interim compensation of professionals (prior to the final fee application) is authorized
under 11 U.S.C. § 331. Under section 331, a professional may apply to the court every three months
for compensation and reimbursement.
Return to text
2289 See In re Continental Airlines, Inc., 138 B.R. 439 (Bankr. D. Del. 1992) (appointing fee
examiner under section 105 in order to implement section 330), rev'd on other grounds, United States
v. Continental Airlines, Inc. (In re Continental Airlines), 150 B.R. 334 (D. Del. 1993) (ordering that
court could not limit access to fee examiner's report).
Return to text
2290 See Columbus Mortgage, 155 B.R. at 298 (reviewing fee applications, court stated that
it is "saddled with the independent obligation to: (1) look as closely at the law and the facts of the
case, as to the impassioned pleas of professionals in behalf of their fee requests; or (2) in appropriate
cases, to appoint special counsel or an independent fee examiner to look after the interests of the
Estate.").
Return to text
2291 11 U.S.C. § 330 (1994) (court is under obligation to review fee applications and award reasonable compensation for actual and necessary services).
Return to text
2292 FED. R. BANKR. P. 9031 (1995).
Return to text
2293 In re Ames Dep't Stores, Inc., 76 F.3d 66, 72 (2d Cir. 1996) (holding necessity of work
should be evaluated at time work was performed).
Return to text
2294 In re Garland Corp., 8 B.R. 826, 829 (Bankr. D. Mass. 1981) ("As a starting point, the time spent on the case is of major importance to the courts in passing judgment on fees.").
Return to text
2295 Ames, 76 F.3d at 72.
Return to text
2296 11 U.S.C. § 330 (1994) (outlining court-ordered compensation for "actual, necessary services" after notice and a hearing"); Executive Office for United States Trustees, Guidelines for
Reviewing Applications for Compensation and Reimbursement of Expenses Filed under 11 U.S.C.
§ 330 (March 22, 1995).
Return to text
2297 28 U.S.C. § 586(a)(3)(A)(i) (1994).
Return to text
2298 Section 586(a)(3)(A)(i) & (ii) requires the U.S. trustee to review fee applications and file
objections when appropriate.
Return to text
2299 The Recommendation will not affect the U.S. trustee's use of outside services (even if separately funded by a bankruptcy estate) to assist it in reviewing fee applications.
Return to text
2300 28 U.S.C. § 586(a)(3)(A) (1994) (requiring uniform review of fee applications in accordance with guidelines adopted by the U.S. trustee and filing comments with the court, where
appropriate).
Return to text
2301 American Bar Association, Model Supreme Court Rules Governing Lawyer Referral and Information Services and "Model Lawyer Referral and Information Service Quality Assurance Act"
Model Rule IX (August 1993).
Return to text
2302 ABA Votes to Urge Fee-Splitting Between Debtor's Counsel and Referral Services, BNA BANKR. L. DAILY (February 21, 1997).
Return to text
|