In re Universal Building Products
486 B.R. 650
Bankr. D. Del.2010Background
- On August 4, 2010, Universal Building Products, Inc. and affiliates filed Chapter 11 petitions and sought DIP financing and sale procedures.
- A creditors’ committee was formed on August 13, 2010 and selected AF and EG as counsel; retention applications were filed August 24–30, 2010.
- A global settlement with the Lenders announced August 23, 2010 allowed the sale to proceed with a liquidating trust for excess DIP funds and avoidance actions.
- Debtors and UST opposed the retention applications; Debtors alleged Rule 2014 disclosures were incomplete and counsel misstated relationships with a translator, Dr. Liu.
- Evidence showed AF and EG sought to obtain proxies from creditors via Dr. Liu, who did not represent those creditors, to influence formation voting.
- The court ultimately held the retention applications should be denied due to disclosure deficiencies and ethical concerns, disqualifying AF and EG.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to object | Debtors have standing under 11 U.S.C. §1109. | EG contends Debtors lack standing to challenge committee representation. | Debtors have standing; objections properly heard. |
| Violation of professional rules | AF and EG violated Rule 7.3 and Rule 8.4 by soliciting proxies via Dr. Liu. | AF/EG deny improper solicitation and deny ethical violation. | Court finds sufficient facts to suggest violations and disqualifies counsel. |
| Disinterestedness | AF was not disinterested due to advising creditors on in-transit goods claims. | AF contends no client-attorney relationship; potential conflict permitted. | Not disqualified on disinterestedness grounds; conflict treated as potential rather than actual. |
| Failure to disclose | Original Rule 2014 disclosures were incomplete regarding Dr. Liu and EAC/SHH. | Disclosures eventually provided; cured by later filings. | Disclosures were deficient; warrants denial of the retention applications. |
Key Cases Cited
- In re Vanderbilt Assocs., Ltd., 117 B.R. 678 (D. Utah 1990) (ethical considerations in committee representation)
- Berger McGill, Inc. v. Capozzoli (In re Berger McGill, Inc.), 242 B.R. 413 (Bankr. S.D. Ohio 1999) (disqualification when adverse interest and ethics concerns arise)
- In re Nat’l Century Fin. Enters., Inc., 298 B.R. 112 (Bankr. S.D. Ohio 2003) (representing committee with creditor conflicts permissible if not adverse)
- In re First Jersey Secs., Inc., 180 F.3d 504 (3d Cir. 1999) (disqualification when actual conflict; potential conflicts allowed)
- In re Nat’l Liquidators, 182 B.R. 186 (S.D. Ohio 1995) (potential conflicts do not mandate disqualification; actual conflicts do)
- In re Jore Corp., 298 B.R. 703 (Bankr. D. Mont. 2003) (conflicts disclosure and duties in bankruptcy representations)