Justia Legal Ethics Opinion SummariesArticles Posted in Bankruptcy
In re: Maxus Energy Corp
Maxus Trust, represented by White, sued YPF, represented by Sidley. Boelter, a partner at Sidley, participated in Sidley’s initial pitch to represent YPF, helped negotiate the engagement letter, worked on motions, was admitted pro hac vice in the proceeding, was copied on correspondence, attended several meetings, and was considered as “an integral part” of YPF’s legal team. She billed 300 hours to the YPF representation.Lauria, a partner in White’s restructuring group, did not record any time related to the case. He was listed as counsel for a creditor during the Chapter 11 proceedings, but never entered an appearance. Sidley knew Boelter and Luria lived together; it is unclear whether YPF knew. Boelter moved to Luria’s firm, White, and immediately went through a conflict-screening process. White implemented an ethical wall on Boelter’s first day; obtained her acknowledgment that she would comply with it; and periodically certified her compliance. White did not give any portion of its fee from the YPF adversary proceeding to Boelter. White gave YPF written notice of Boelter’s employment the day she began with the firm, with an explanation of the firm’s and of Boelter’s compliance with the ABA Model Rules. YPF believed no screen could be good enough and moved to disqualify White from representing the Trust.The Third Circuit affirmed the Bankruptcy Court's denial of the motion. Exceptional circumstances did not exist to impute Boelter’s conflict to the entire firm despite a screen. View "In re: Maxus Energy Corp" on Justia Law
In re: Village Apothecary, Inc.
As special counsel, the law firm of Silverman & Morris recovered $38,000 for the estate in the Village Apothecary bankruptcy proceeding and requested $37,063 in fees. The bankruptcy court, finding that the benefit of the services did not warrant awarding the full amount, halved the award.The Sixth Circuit affirmed. Bankruptcy courts can consider “results obtained” when determining whether fees are reasonable under 11 U.S.C. 330(a)(3) and the bankruptcy court did not abuse its discretion in reducing the fees by half. In determining the amount of reasonable compensation to be awarded to a professional person, the court shall consider the nature, the extent, and the value of such services; section 330(a)(3) instructs the courts to “tak[e] into account all relevant factors, including” the time spent, rates charged, “whether the services were necessary . . . or beneficial at the time at which the service was rendered,” as well as other factors, including “results obtained.” Here, the “results obtained” were minimal. The law firm’s efforts to recover $1.6 million dollars resulted in only $38,000. Had the bankruptcy court awarded the law firm all its fees, it would have left virtually nothing for the estate. View "In re: Village Apothecary, Inc." on Justia Law
ANTHONY KASSAS V. STATE BAR OF CALIFORNIA
Appellant a Chapter 7 debtor, was disbarred by the California Supreme Court in 2014 for violations of the State Bar Rules of Professional Conduct and the California Business and Professions Code. The California Supreme Court ordered Appellant to pay restitution to 56 former clients, costs for his disciplinary proceedings, and any funds that would eventually be paid out by the State Bar’s Client Security Fund (CSF) to victims of his conduct. Appellant subsequently filed for Chapter 7 bankruptcy and received a discharge. The Ninth Circuit affirmed in part and reversed in part the bankruptcy court’s judgment. Reversing in part, the court held that the indebtedness arising from the attorney’s obligation to reimburse the State Bar for the payments made to victims of his misconduct was not excepted from discharge under 11 U.S.C. Section 523(a)(7), which provides that a debtor is not discharged from any debt that “is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.” Considering the totality of the Client Security Fund program, the court concluded that any reimbursement to the Fund was payable to and for the benefit of the State Bar and was compensation for the Fund’s actual pecuniary loss in compensating the victims for their actual pecuniary losses. Affirming in part the court held that, pursuant to In re Findley, 593 F.3d 1048 (9th Cir. 2010), the costs associated with the attorney’s disciplinary proceedings were nondischargeable under Section 523(a)(7). View "ANTHONY KASSAS V. STATE BAR OF CALIFORNIA" on Justia Law
Johnston v. Hildebrand
Gayle died in 2006. Attorney Johnston filed Chapter 13 bankruptcy petitions on behalf of Gayle in 2016 and 2018 at the request of Gayle’s daughter, Elizabeth, the Administratrix of her mother’s probate estate. After the dismissal of the 2018 petition, Elizabeth, pro se, filed three Chapter 13 petitions on Gayle’s behalf. The Chapter 13 Trustee sought sanctions against Bagsby after she filed yet another Chapter 13 petition.The bankruptcy court ordered Johnston to show cause why he should not be subject to sanctions for filing the two Chapter 13 petitions on behalf of a deceased person. After a hearing, the bankruptcy court reopened the first two cases and issued sanctions sua sponte against Johnston and Bagsby. The bankruptcy court determined that Johnston failed to conduct any inquiries or legal research, there was no basis in existing law to support a reasonable possibility of success, and the cases were filed for the express purpose of delaying foreclosure actions. The bankruptcy court concluded Johnston violated Rule 9011 of the Federal Rules of Bankruptcy Procedure. The Bankruptcy Appellate Panel and the Sixth Circuit affirmed the sanctions order. Johnson had admitted to the factual findings. The bankruptcy court was not required to find that Johnson acted in bad faith, in a manner “akin to contempt of court,” or with a specific mens rea but only whether Johnston’s conduct was reasonable. View "Johnston v. Hildebrand" on Justia Law
In re: Imerys Talc America, Inc.
A group of insurance companies appealed an order appointing a representative for the interests of unidentified future asbestos and talc claimants in an ongoing bankruptcy proceeding. According to these insurers, who fund the asbestos claims trust established under 11 U.S.C. 524(g), this “future claimants’ representative” (FCR) has a conflict of interest precluding him from serving in this role because the FCR’s law firm also represented two of the insurance companies in a separate asbestos-related coverage dispute.The Third Circuit held that the Bankruptcy Court did not abuse its discretion in appointing the FCR. The court gave due consideration to the purported conflict, and correctly determined that the interests of both the insurance companies and the future claimants were adequately protected. View "In re: Imerys Talc America, Inc." on Justia Law
In re: Boy Scouts of America
Century issued insurance to BSA and purchased reinsurance. After BSA made claims related to sexual abuse litigation, Century sought to collect on those policies and hired the Sidley’s Insurance Group. The representation did not extend to the underlying direct insurance; BSA was not a party to the reinsurance disputes. BSA later retained Sidley to explore restructuring; the engagement letter specified that Sidley would not “advis[e] [BSA] on insurance coverage.” Sidley filed BSA’s bankruptcy petition.Through Haynes, its insurance counsel, BSA engaged in substantive discussions with its insurers, including Century. Sidley attorneys were present at some meetings. Century did not object. When Century later objected, Sidley implemented a formal ethics screen between its restructuring team and its reinsurance team. Ultimately, the Bankruptcy Court recognized Sidley’s withdrawal. Century is separately pursuing its grievances about Sidley’s representation in arbitration.The Bankruptcy Court concluded that while Sidley may have received confidential information in the reinsurance matter relevant to BSA’s bankruptcy, no privileged or confidential information was shared between the Sidley's legal teams; it approved Sidley’s retention nunc pro tunc, finding no violation of 11 U.S.C. 372(a). The district court and Third Circuit affirmed. Century continued to have standing and the matter is not moot. Because Sidley’s representation of BSA did not prejudice Century, but disqualifying it would have been a significant detriment to BSA, it was well within the Court’s discretion to determine that the drastic remedy of disqualification was unnecessary. View "In re: Boy Scouts of America" on Justia Law
In re: Romanzi
Attorney Romanzi referred a personal injury case to his employer, the Fieger law firm; meanwhile, creditors were winning default judgments against Romanzi. The case settled for $11.9 million; about $3.55 million was awarded as attorney’s fees after Romanzi quit the firm. Romanzi’s employment at the firm entitled him to a third of the fees. Before Romanzi could claim his due, his creditors forced him into Chapter 7 bankruptcy. The trustee commenced an adversary proceeding against the firm to recover Romanzi’s third of the settlement fees for the bankruptcy estate. The parties agreed to arbitration.Two of the three arbitrators found for the trustee in a single-paragraph decision that was not "reasoned" to the firm’s satisfaction. The district court remanded for clarification rather than vacating the award. On remand, the panel asked for submissions from both parties, which the trustee provided; the firm refused to participate. The arbitrators’ subsequent supplemental award, approved by the district court, awarded the trustee the fees plus interest. The Sixth Circuit affirmed, rejecting arguments that the arbitrators’ original award was compromised according to at least one factor allowing vacation under the Federal Arbitration Act, 9 U.S.C. 10(a); that the act of remanding and the powers exercised by the arbitrators on remand violated the doctrine of functus officio; and that the supplemental award should have been vacated under the section 10(a) factors. The district court’s and panel’s actions fall under the clarification exception to functus officio. View "In re: Romanzi" on Justia Law
Osicka v. Office of Lawyer Regulation
The Seventh Circuit upheld the bankruptcy court's ruling that the costs of plaintiff's attorney disciplinary proceedings imposed by the Wisconsin Supreme Court were not dischargeable under a provision of the Bankruptcy Code, 11 U.S.C. 523(a)(7). The court explained that, although there are several types of proceedings in which the Wisconsin Supreme Court may order costs, see Wis. S.C.R. 22.24(1), attorney discipline uniquely requires a "finding of misconduct" as a precondition for doing so. The court stated that the structure of Rule 22.24(1m) unambiguously singles out attorney discipline as a penal endeavor, and that conclusion has a statutory consequence under section 523(a)(7). Furthermore, the cost order amounts to compensation for actual pecuniary loss under section 523(a)(7). Finally, the court's conclusion that plaintiff's disciplinary costs are nondischaregable under section 523(a)(7) finds firm support in Supreme Court precedent and the court's own case law. View "Osicka v. Office of Lawyer Regulation" on Justia Law
Church Joint Venture, L.P. v. Blasingame
In 2008, the Blasingames met with attorneys Fullen and Grusin to discuss their financial situation and signed engagement agreements. The Blasingames filed a Chapter 7 bankruptcy petition with Fullen as the attorney of record. Fullen constructed the bankruptcy schedules, obtaining the Blasingames’ financial information from Grusin. The Blasingames claimed less than $6,000 in assets. The bankruptcy court later found the Blasingames failed to disclose millions of dollars in assets that they controlled through a complex web of family trusts, shell companies, and shifting “clearing accounts.”In 2011, the bankruptcy court granted the Trustee summary judgment, denying the Blasingames’ discharge and disqualified the attorneys from further representation of the Blasingames. Although the Blasingames’ new counsel was able to obtain relief from the summary judgment order, their discharge was again denied in 2015. The Bankruptcy Appellate Panel (BAP) affirmed.A major creditor, CJV1, obtained derivative standing from the bankruptcy court to file a malpractice claim against the filing attorneys on behalf of the estate. CJV, in the bankruptcy court, and the Blasingames, in Tennessee state court, filed malpractice complaints. The bankruptcy court refused to approve the Blasingames’ settlement with the attorneys; the BAP and Sixth Circuit dismissed the Blasingame’s appeal for lack of jurisdiction. CJV asserted that the malpractice claims are property of the bankruptcy estate. The bankruptcy court, the BAP, and the Sixth Circuit ruled in favor of the Blasingames. Under Tennessee law, the legal malpractice claims accrued arose post-petition. View "Church Joint Venture, L.P. v. Blasingame" on Justia Law
In re Glenview Health Care Facility, Inc.
Glenview, a Glasgow, Kentucky nursing home, jointly owned by Bush and Howlett for over 30 years, filed a voluntary chapter 11 bankruptcy petition. The Official Creditors Committee was formed and filed an application to retain DBG, with a declaration from DGB's managing partner, disclosing that DBG had previously represented Howlett in estate planning matters, unrelated to the Chapter 11 case, that the representation concluded in 2017, and that the professionals who represented Howlett would not represent the Committee. Glenview filed an objection, although Howlett did not, asserting that DBG assisted Glenview and Howlett with the preparation of a buy-sell agreement for Glenview and all its assets, attaching an invoice from DBG for a period in 2016. DBG asserted that no buy-sell agreement was consummated, and that the representation related only to estate planning. The bankruptcy court heard arguments but did not conduct an evidentiary hearing, then denied the Committee’s application to employ DBG.The Sixth Circuit Bankruptcy Appellate Panel vacated, finding that the court abused its discretion under 11 U.S.C. 1103. State and federal courts jealously guard the attorney-client relationship and that solicitude extends to a committee’s choice of counsel in bankruptcy. View "In re Glenview Health Care Facility, Inc." on Justia Law