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| Co-Chairs Corner |
| The Ethics and Professional Compensation Committee had an active 2021, and we are excited to carry that energy into 2022.
Last year, the committee paired with the Mediation Committee at the Annual Spring Meeting to put on When Mediation Gets Messy: Ethical Dilemmas. This panel addressed hypothetical mediation scenarios, including situations raising difficult ethics questions. The panel was well attended and enjoyed by all.
At the Winter Leadership Conference, we paired with the Emerging Industries and Technology Committee to put on Cybersecurity and Being Secure in Your Practice: How Confident Are You in Your Competency? This was yet another successful — and timely — panel.
The committee also published numerous articles, which are available online if you missed them. These articles covered sanctions for asserting stale claims, bad-faith dismissals, reimbursement limitations for chapter 7 trustees, hourly compensation rates for subchapter V trustees and more. We are always looking for future articles, so please reach out if you would like to contribute.
We are also thankful for those who attended our virtual committee meeting over Zoom in September. We brainstormed plans and ideas for the year, including reviving the Ethics Task Force or perhaps updating and republishing its work. We hope to convene another meeting — and maybe a virtual happy hour — in the coming months, as well. |
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| Fifth Circuit Clarifies Scope of Permissible Compensation of Estate Professionals Under 11 U.S.C. § 330(a) |
| On Jan. 14, 2022, a three-judge panel of the Fifth Circuit in In the Matter of Sharon Sylvester (Sylvester v. Chaffe McCall LLP) held that a trustee’s attorney is entitled to compensation under Bankruptcy Code § 330(a) “only for services requiring legal expertise that a trustee would not generally be expected to perform without an attorney’s assistance.”
In the bankruptcy proceeding below, the chapter 7 trustee employed Chaffe McCall pursuant to Bankruptcy Code § 327(a). At the conclusion of a successful chapter 7, with creditors paid in full and a surplus to the debtor, Chaffe filed a fee application pursuant to Bankruptcy Code § 330(a), which permits a bankruptcy court to “award ... a professional employed under section 327 ... reasonable compensation for actual, necessary services ....”
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| Uncommon and Controversial, Are Post-Petition Retainers Authorized Under the Bankruptcy Code? |
| Bankruptcy courts have not always favored post-petition retainers to debtor’s counsel. But does the Bankruptcy Code prohibit them? That is exactly the question Judge David D. Cleary answered in In re Golden Fleece Beverages Inc., in which he held that the Code indeed supports post-petition retainers.
In the case, a chapter 11 debtor decided to go in another direction and hired new counsel during the case. In the engagement letter, the debtor agreed to pay a $75,000 retainer to its new counsel. Under the letter’s terms, the retainer would be escrowed, with any payments from the retainer to be paid after bankruptcy court approval. The debtor filed an application to retain that firm, and the U.S. Trustee objected.
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| How and Why We Avoid Conflicts of Interest: The Relevance of Conflict Checks in Turnaround Work |
From its inception, the National Ethics Task Force was charged with answering the question of whether there is a need for national ethics rules, standards and general practice guidance in the bankruptcy context. As the Task Force launched, several conflicts-related issues became apparent, including shifting allegiances that arise during the life of a case, the complexity of disclosure of “connections” when seeking approval of employment, the fleshing out of the duties of counsel for a debtor in possession, and the role of conflicts counsel in business reorganization cases. In the course of its review, the Task Force recognized that:
- Sections 327 and 1103 of the Bankruptcy Code set forth specific standards that proposed that professionals must meet in order to be retained as an estate or committee professional. Each of these provisions requires the professional in question to meet certain standards relating to their independence from parties other than their client in a case . . . . As noted by several courts, “[t]he purpose of Rule 2014(a) is to provide the court and the United States Trustee with information to determine whether the professional's employment is in the best interest of the estate . . . . Rule 2014 disclosures are to be strictly construed, and failure to disclose relevant connections is an independent basis for the court to disallow fees or to disqualify the professional from the case.”
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