S & O Investments, Inc., 24-11167

Background

Three related debtor entities (Samys OC, LLC; S&O Investments, Inc.; American Warrior Construction, Inc.)—all with common ownership interests and overlapping debts—each filed for Chapter 11 bankruptcy in November 2024 after a judgment and collection attempts by a major creditor.
Hinkle Law Firm (“Hinkle”) sought to represent all three debtor entities in their bankruptcy cases, with their retainers funded by one of the debtors’ principals, Amro Samy, via a line of credit.
There are significant intercompany debts, monetary transfers, and claims among the debtor entities themselves, as well as ongoing, actively litigated disputes between the debtors’ principals and other business affiliates.
The U.S. Trustee and Cairo (a co-owner and primary creditor connected to the O’Brate estate) challenged Hinkle’s employment due to conflicts, adequacy of disclosures, and an alleged attorney-client conflict involving a Hinkle associate who previously worked for legal counsel of a major creditor.
After a full evidentiary hearing, the court concluded Hinkle’s representation would violate the Bankruptcy Code conflict rules and Kansas Rules of Professional Conduct due to irreconcilable adverse interests among the debtors and the firm’s entanglement with a former adversary’s confidences.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Adequacy of Disclosures under Rule 2014	Original and amended disclosures failed to timely and fully reveal all material connections, intercompany claims, and the prior relationship of a new associate to a major creditor.	Supplemental/amended affidavits and testimony cured any omission, and all relevant connections were ultimately disclosed.	Original affidavits were insufficient, but supplement rendered issue moot given ruling on conflicts.
Conflict of interest under § 327(a) (adverse interests/disinterestedness)	Intercompany loans and claims among the debtor entities create unavoidable direct and material adversity; Hinkle cannot serve fiduciary duties to each estate impartially.	The debtors’ interests are aligned; conflicts are minor and could be handled by waiver or separate counsel for limited matters.	Hinkle’s representation would require advocating against clients’ interests and violates § 327(a); not disinterested.
Actual conflict under § 327(c) (debtor-creditor representation)	As each debtor is creditor to another, Hinkle cannot act impartially, and objecting creditors preclude joint representation if actual conflict exists.	Joint representation is efficient and permissible, and any conflicts can be waived by the affected parties or managed by conflicts counsel.	Actual, irreconcilable conflict exists; one interest would be served at expense of the other; conflict is central and cannot be cured.
Attorney-client conflict under KRPC (former client’s confidences)	Hinkle’s associate, as a former assistant at creditor’s law firm, was exposed to material confidential information relating to substantially related disputes.	The associate has no current memory or involvement, and Hinkle would screen her; screening and previous waivers suffice.	KRPC does not recognize screening; prior exposure to confidential, materially relevant information precludes Hinkle’s representation.

Key Cases Cited

In re Interwest Bus. Equip., Inc., 23 F.3d 311 (10th Cir. 1994) (simultaneous representation of interrelated debtors with inter-company claims is impermissible due to inherent conflicts)
In re Smitty’s Truck Stop, Inc., 210 B.R. 844 (10th Cir. BAP 1997) (full and specific disclosure required for employment of professionals in bankruptcy)
Zimmerman v. Mahaska Bottling Co., 19 P.3d 784 (Kan. 2001) (imputation of conflicts rules under the Kansas RPC apply to nonlawyer staff with exposure to client confidences)