RWDY, Inc.
22-11308
| Bankr. W.D. La. | Mar 24, 2025Background
- RWDY, Inc., an oilfield consulting company, filed a Chapter 11 bankruptcy after a prior officer, Brian Owen, embezzled millions via an off-ledger bank account.
- While performing bankruptcy-related accounting services, Trent Millican and his firm, longstanding accountants for RWDY, were paid $139,000 in interim fees.
- Discovery revealed Millican had co-signed the off-ledger account but claimed ignorance of Owen's theft and the account’s illicit usage.
- The estate’s liquidating trust moved for disgorgement of the accountants’ fees, claiming Millican and his firm were not "disinterested" as required by 11 U.S.C. § 327, due to their alleged role in and knowledge of Owen’s misconduct.
- The focus was on whether the accountants acted "knowingly," "intentionally," or "recklessly" in misrepresenting their disinterestedness to the court at the time of their employment.
- The court was limited by the particular grounds articulated in the motion, specifically allegations of willful or reckless misconduct, not simple negligence or inadequate disclosure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Disgorgement for not being "disinterested" under §327 | Millican knowingly acted with Owen and hid adverse interest | Denied wrongdoing or conscious involvement | No evidence of knowing, intentional, or reckless misrepresentation; relief denied |
| Malpractice claim as "interest adverse" | Accountants' prepetition malpractice means they held an adverse interest | No knowledge of dispute; stopped work when dispute arose | Court need not decide due to lack of factual finding on knowing or reckless conduct |
| Misrepresentations to the court | Millican's declaration was knowingly false on disinterestedness | Millican believed in good faith in disinterestedness | No evidence of knowing or reckless misrepresentation found |
| Failure of mandatory disclosure under Rule 2014 | Accountants didn't adequately disclose connections | N/A (Not challenged in the motion) | Issue not decided; insufficiently pled |
Key Cases Cited
- In re Am. Int'l Refinery, Inc., 676 F.3d 455 (5th Cir. 2012) (defines "adverse interest" for bankruptcy disinterestedness analysis)
- In re West Delta Oil Co., 432 F.3d 347 (5th Cir. 2005) (provides adverse interest test adopted by court)
- In re Prince, 40 F.3d 356 (11th Cir. 1994) (disgorgement for non-disinterested professionals is discretionary)