BANK BUILDING ASSOCIATES LIMITED PARTNERSHIP v. FORMAN, 2:17-cv-07266

Bank Building Associates Ltd. P’ship (Debtor) filed Chapter 11 on Dec. 30, 2014; it sold its only asset and a Chapter 11 trustee was ordered to manage sale proceeds.
Charles M. Forman (then at LeClairRyan) was appointed Chapter 11 trustee on Dec. 8, 2016 and verified he had no disqualifying connections other than unrelated representations by his firm for some creditors.
Forman applied to retain LeClair as trustee’s counsel; the Bankruptcy Court approved the retention in Jan. 2017.
In May 2017 Forman amended LeClair’s disclosure to reveal two additional LeClair representations involving related parties (settled and/or small claims) that had been missed by internal conflict checks.
Appellants (USLR and Bank Building) moved to remove Forman and disqualify LeClair for incomplete disclosures; Forman left LeClair in June and later sought retention of his new firm as counsel.
The Bankruptcy Court denied removal and disqualification (finding nondisclosures inadvertent, not egregious, and not creating actual/potential conflicts); the district court affirmed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether trustee must be removed for incomplete disclosure under Fed. R. Bankr. P. 2007.1(c) and § 101(14)	Any failure to disclose requires removal/disqualification of Forman and his firm	Removal requires "cause" (fraud, injury to estate, breach of fiduciary duty); mere nondisclosure absent actual/potential conflict is insufficient	Court held removal not required: nondisclosures were inadvertent, tied to LeClair, did not follow Forman to his new firm, and created no actual/potential conflict; no abuse of discretion in denial of removal
Whether trustee’s counsel must be disqualified for incomplete Rule 2014 disclosures	LeClair’s failure to disclose connections mandates disqualification regardless of conflict	Disqualification requires an actual conflict (appearance alone insufficient); failures here were not egregious and were promptly amended	Court held disqualification not required: disclosure failures were inadvertent, corrected, and did not produce an actual or potential conflict; decision affirmed

In re Am. Pad & Paper Co., 478 F.3d 546 (3d Cir. 2007) (standard of review for bankruptcy court factual findings and discretion)
In re Allegheny Int’l, Inc., 954 F.2d 167 (3d Cir. 1992) (definition of clear error standard)
United States v. U.S. Gypsum Co., 333 U.S. 364 (U.S. 1948) (articulation of clear-error review language)
In re BHP, Inc., 949 F.2d 1300 (3d Cir. 1991) ("cause" standard for trustee removal; fact-specific inquiry)
In re Marvel Entm’t Grp., Inc., 140 F.3d 463 (3d Cir. 1998) (disqualification of counsel requires actual conflict; appearance alone insufficient)
In re Sharon Steel Corp., 871 F.2d 1217 (3d Cir. 1989) (de novo review of legal conclusions)