In re Wolfson, 586 B.R. 790

Background

Debtor Diane Wolfson originally filed chapter 7; retained Weinman & Associates, P.C. to prepare and file the chapter 7 petition and schedules.
On May 23, 2018 Wolfson converted the case from chapter 7 to chapter 11 and sought to employ Weinman as debtor-in-possession counsel under 11 U.S.C. § 327.
Weinman filed the required affidavit asserting disinterestedness and no adverse interest; Weinman is not a creditor of the estate.
Former spouse and sole objector Dan Witkowski argued Weinman should be disqualified because Weinman previously represented Wolfson in pre-conversion disputes (including negotiations with the chapter 7 trustee and a homestead exemption dispute) that Witkowski contends were adverse to the estate.
The chapter 7 trustee had filed an adversary proceeding against Witkowski pre-conversion; after conversion Wolfson substituted as plaintiff; Witkowski also seeks reconversion alleging bad-faith conversion to avoid settlement.
Court focused on whether Weinman presently represents an interest adverse to the estate under § 327(a), and considered § 1107(b)’s allowance for prior representation of the debtor.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Weinman is disqualified under § 327(a) because it previously represented the debtor in matters adverse to the estate	Witkowski: Weinman represented Wolfson in pre-conversion matters adverse to the estate, so Weinman now represents an adverse interest and must be disqualified	Wolfson/Weinman: Weinman is disinterested, not a creditor or insider, and prior representation alone does not bar employment under § 327(a) and § 1107(b)	Court held Weinman is disinterested and prior pre-conversion representation does not disqualify employment as debtor-in-possession counsel; objection overruled
Whether past (pre-conversion) adverse positions by a debtor prevent pre-conversion counsel from serving post-conversion as debtor-in-possession counsel	Witkowski: Debtor took positions adverse to the estate pre-conversion; counsel who represented those positions should be disqualified	Weinman/Wolfson: § 1107(b) prevents disqualification solely for pre-case representation; the court should assess present adverse representation, not historical positions	Court held § 327(a) applies to present adverse representation; § 1107(b) permits employment despite prior representation, so historical adverse positions do not automatically disqualify counsel
Whether Weinman presently holds or represents an interest adverse to the estate	Witkowski: Prior representation indicates bias or an ongoing adverse interest	Weinman: No present economic interest adverse to the estate; no creditor status and no evidence of present bias	Court: No evidence Weinman presently holds or represents an adverse interest; Weinman is disinterested under § 101(14) and may be employed
Whether conversion to chapter 11 changes the analysis such that new counsel is required	Witkowski: Conversion should bar prior counsel who advocated against estate interests	Weinman/Wolfson: Chapter 11 duties differ and counsel can adjust; requiring new counsel on conversion is impractical and not supported by authority	Court: Requiring new counsel on conversion would be contrary to § 1107(b) and impractical; prior counsel may be employed nunc pro tunc

Key Cases Cited

In re 7677 E. Berry Ave. Assoc., 419 B.R. 833 (Bankr. D. Colo. 2009) (distinguishing having vs. representing adverse interests and focusing on present-tense inquiry under § 327(a))
In re Roberts, 46 B.R. 815 (Bankr. D. Utah 1985) (defining "represent an adverse interest" as serving as agent/attorney for one holding an adverse interest)
In re Roberts, 75 B.R. 402 (D. Utah 1987) (appellate disposition referenced in opinion)
In re Waldvogel, 125 B.R. 13 (Bankr. E.D. Wis. 1991) (describing chapter 7 debtor's role as acting primarily for personal benefit)

Order: Witkowski's objection overruled; Weinman employed as debtor-in-possession counsel nunc pro tunc to filing of the application.