Bernard P. Rome, Esquire, appeals from a district court order entered on intermediate appeal, affirming a bankruptcy court ruling under Bankruptcy Code § 328(c) disallowing Rome’s application for fees as court-appointed counsel to chapter 7 debtor Chestnut Hill Mortgage Corporation (CHM) due to disqualifying conflicts of interest. Finding no error, we affirm.
I
BACKGROUND
As its longtime corporate clerk and counsel, Rome filed a chapter 11 petition in behalf of CHM in November 1989, followed by an application for Rome’s appointment as counsel to the chapter 11 debtor in possession pursuant to Bankruptcy Code § 1107(a), 11 U.S.C. § 1107(a);
see also id.
§ 327(a), 11 U.S.C. § 327(a). Thereafter, as counsel to the debtor in possession, Rome filed three abortive chapter 11 reorganization plans proposing a 20% dividend to general creditors. Various CHM creditors successfully resisted
Meanwhile, three months before Braun-stein’s appointment as the CHM chapter 11 trustee, an involuntary chapter 7 petition had been Sled against Arnold Leavitt. Shortly thereafter, while still serving as counsel to CHM in its chapter 11 case, and with bankruptcy court authorization, Rome began to serve as counsel to Arnold Leavitt in the involuntary chapter 7 proceeding. As chapter 11 trustee, appellee Braunstein began negotiations with Rome, by then also representing one Sandra Dickerman, Arnold Leav-itt’s secretary at CHM, in her ultimately successful bid to purchase property belonging to the CHM chapter 11 estate. In March 1991, less than two months after the bankruptcy court approved the Dickerman acquisitions from CHM, the CHM chapter 11 proceedings were converted to chapter 7 and Braunstein was appointed the CHM chapter 7 trustee.
Late in 1991, Braunstein, R & B, and Rome filed applications for compensation and reimbursement of expenses. The Braunstein application, as chapter 11 and chapter 7 trustee, and the R & D application as counsel to the chapter 11 and chapter 7 trustee, approximated $81,000 in fees. The Rome request, as counsel to CHM qua debtor and chapter 11 debtor in possession, approximated $62,000. The applications were opposed by CHM creditors; additionally, Braunstein, as the CHM chapter 7 trustee, opposed the Rome application.
At the hearing held on these fee applications, Braunstein represented to the bankruptcy court that he intended to set aside certain prepetition transfers of CHM assets as either preferential or fraudulent. Creditors represented to the court that Arnold Leavitt had “looted” CHM prior to Rome’s filing of the CHM chapter 11 petition, by transferring CHM assets to Leavitt family members, and that Rome, in an effort to further Leavitt’s interests at the expense of CHM and its creditors, repeatedly “obstructed” creditor efforts to investigate CHM’s financial condition and to promote its reorganization. The bankruptcy court ultimately allowed the Braunstein and R & B fee applications in full. On the other hand, the court disallowed the Rome application entirely, on two grounds: (1) Rome’s contentious tenure as counsel to the debtor in possession “produced virtually no benefit to creditors and loan participants”; and (2) Rome’s concurrent representation of CHM and Leavitt, as well as CHM and Dickerman, was “patently inappropriate.” The district court affirmed
II
DISCUSSION
The Bankruptcy Code imposes particularly rigorous conflict-of-interest restraints upon the employment of professional persons in a bankruptcy case.
Except as otherwise provided in this section, the trustee, with the court’s approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee’s duties under this title.
Bankruptcy Code § 327(a), 11 U.S.C. § 327(a) (emphasis added).
See
Fed. R.Bankr.P. 2014;
In re Cropper Co.,
Although the Code idiom “interest adverse” is not defined,
1
the companion requirement — that appointees be “disinterested” — is defined,
see
Bankruptcy Code § 101(14), 11 U.S.C. § 101(14), as including,
inter alia,
one who is “not a creditor, an equity shareholder, or an insider,”
nor
presently, or “within two years before [bankruptcy], a[n] ...
officer
... of the debtor,”
and
does not have “an
interest materially adverse
to the interest of the estate or of any class of creditors or equity security holders” for “any reason.”
Id.
(emphasis added);
see In re Martin,
In the exercise of its own ongoing affirmative responsibility to “root out impermissible conflicts of interest” under Bankruptcy Code §§ 327(a) and 328(c), the bankruptcy court must determine whether any competing interest of a court-appointed professional “created either a meaningful incentive to act contrary to the best interests of the estate and its sundry creditors — an incentive sufficient to place those parties at
more than acceptable risk
— or the
reasonable perception
of one.”
Martin,
The bankruptcy court determined that Rome improperly represented two undisclosed “interests] adverse” to the CHM chapter 11 estate — Arnold Leavitt and Sandra Dickerman — resulting in actual conflicts of interest warranting Rome’s retroactive disqualification and forfeiture of all compensation from the chapter 11 estate. Rome raises three principal challenges to the bankruptcy court ruling.
A. The Duty of Disclosure
First, Rome argues that retroactive disqualification is inequitable in these circumstances, since the bankruptcy court and the trustee tacitly endorsed his representation of Leavitt and Dickerman,
pendente lite,
or, at
Although the bankruptcy court has an affirmative duty to exercise vigilance in avoiding impermissible conflicts of interest on the part of court-appointed professionals,
see, e.g., In re Anver Corp.,
As with other prophylactic ethical rules constraining attorney conduct, sections 327(a) and 328(c) cannot achieve their purpose unless court-appointed counsel police themselves in the first instance, especially in circumstances such as these, where the nominal applicant (CHM) for Rome’s appointment is a corporate debtor in possession who can only act through its officers and agents— here Leavitt, Rome, and Dickerman — and
may not command the appointee’s primary loyalty. See In re Roberts,
Absent the spontaneous, timely and complete disclosure required by section 327(a) and Fed.R.Bankr.P. 2014(a), court-appointed counsel proceed
at their own risk. See, e.g., In re Roger J. Au & Son, Inc.,
B. The Risk Posed by Competing Interests
Second, in a bid to vindicate his failure to disclose, Rome claims there was no potential conflict of interest since Leavitt’s and Dick-erman’s interests were never “adverse” to those of the chapter 11 estate.
1. The Leavitt Interests
Rome argues that section 327(a) does not absolutely prohibit concurrent representation of a corporate debtor in possession and its sole shareholder, absent evidence affirmatively demonstrating an “actual” — as distinguished from a “potential” — conflict of interest. Moreover, there could have been no “actual” conflict, he suggests, because: (1) between December 1989 and May 1990, Rome did not represent Leavitt; (2) between May 1990, when the involuntary chapter 7 petition was filed against Leavitt, and August 1990, when Braunstein was appointed the CHM chapter 11 trustee, it was not Rome but the chapter 7 trustee who represented the Leavitt chapter 7 estate; and (3) none of the transfers from CHM to Leavitt prior to CHM’s chapter 11 petition have yet been proven improper, preferential or fraudulent. These arguments are specious.
The fact that Rome did not represent Leavitt until May 1990 is immaterial, since section 328(c) expressly empowers the bankruptcy court to disallow compensation if court-appointed counsel, “at any time,” is either not a “disinterested” person “or represents or holds an interest adverse to the interest of the estate with respect to the matter on which [counsel] is employed.” Bankruptcy Code § 328(c), 11 U.S.C. § 328(c). Rome’s post-May 1990 representation of chapter 7 debtor Leavitt, against whom the CHM chapter 11 estate — also represented by Rome — held claims for the avoidance of alleged preferential and fraudulent transfers, created a clear conflict of interest
without regard to whether the Leavitt chapter 7 estate itself was represented by a trustee in bankruptcy.
After all, Rome sought compensation for services rendered
to the CHM chapter 11 estate,
not to Leavitt, the chapter 7 debtor.
Cf. In re Hoffman,
As concerns Rome’s third contention — that no transfers from CHM to Leavitt prior to CHM’s chapter 11 petition have yet been
proven
improper, preferential or Jxaudulent — we are bound by the bankruptcy court’s factual findings unless clearly erroneous.
See In re LaRoche,
2. The Dickerman Interests
Rome argues, in a similar vein, that after Braunstein’s appointment as the CHM chapter 11 trustee in August 1990, Braunstein alone represented CHM’s interests. Thus, as a matter of law, there could have been no disqualifying “conflict of interest” in Rome’s concurrent representation of Dicker-man in her successful purchase of CHM’s assets. Moreover, even as a factual matter, he argues, there could have been no actual conflict because Dickerman was the only bidder and the sale benefited both buyer and seller.
As with other arguments insistently advanced by Rome, this one presupposes that there can be no disqualifying conflict absent proof of
actual loss or injury.
On the contraxy, simultaneous representation of the buyer and the seller in the same transaction is a prototypical disqualifying conflict of interest even if it is not invariably disqualifying in all circumstances.
See In re Tidewater Memorial Hosp., Inc.,
C. Severity of Sanction
Finally, Rome argues, even if the bankruptcy court supportably determined that he represented “adverse” interests that should have been disclosed ab initio, the most it should have done is reduce his compensation since there is no evidence that any conflict of interest, however suspect in appearance, actually harmed the chapter 11 estate or its creditors, and the trustee concedes that Rome provided “valuable services” to the estate. 6
An attorney retained pursuant to section 327(a) assumes a fiduciary responsibility to refrain from rendering any unauthorized service in furtherance of an interest adverse to the client he serves by court appointment.
See In re Kendavis,
Like other courts which have considered the issue, however, we adopt no
per se
or brightline rule invariably
requiring
denial of all compensation under section 328(e).
7
Nevertheless, based on its familiarity with the CHM proceedings, the bankruptcy court in this case acted well within its discretion in finding that Rome’s services “produced virtually no benefit.”
See, e.g.,
Bankruptcy Code § 330(a)(1), 11 U.S.C. § 330(a)(1) (compensation may be based on assessment of “the value of such services”);
In re Kendavis,
The district court judgment is affirmed.
Notes
. However, an "adverse interest” has been described in pragmatic terms as the “possess[ion] or assertion] [of] mutually exclusive claims to the same economic interest, thus creating either an actual or potential dispute between rival claimants as to which ... of them the disputed right or title to the interest in question attaches under valid and applicable law; or (2) [the possession of] a predisposition or interest under circumstances that render such a bias in favor of or against one of the entities.”
In re. Roberts,
. Rome argues on appeal that he not only disclosed his position as the clerk of CHM but could reasonably have believed that such a ministerial position would not make him a corporate "insider” within the meaning of Bankruptcy Code § 101(31), 11 U.S.C. § 101(31). We express no view on these claims, and confine our holding to Rome’s impermissible representation of two other clients (Leavitt and Dickerman) with “interests adverse” to the CHM estate which he was responsible for representing by court appointment.
. Of course, disclosure of facts suggesting a conflict is not invariably followed by disqualification. In special circumstances, for example, the bankruptcy court could determine, in the sound exercise of its discretion, that any potential impairment of its institutional integrity, or risk of divided loyalty by counsel, was substantially outweighed by the benefits to be derived from counsel's continued representation of multiple entities or the impracticability of disentangling multiple interests "without unreasonable delay and expense."
In re Hoffman,
. Although
In re Freedom Solar
involved an application of the Maine Bar Rules in a bankruptcy proceeding, we cite to it throughout this opinion in contexts legitimately informed by its closely
. Appellee Braunstein, the CHM chapter 7 trustee, represented to the bankruptcy court that he had objected to Leavitt’s chapter 7 discharge, and was preparing to initiate an adversary proceeding against Leavitt’s wife and son to recover an automobile allegedly transferred to Leavitt by CHM a few months before Rome filed the chapter 11 petition in behalf of CHM.
Cf. In re Freedom Solar,
. We need not address Rome’s argument that it was inequitable to allow the Braunstein and R & B fee applications in full, yet disallow Rome's application in full. Rome informed the bankruptcy court that he was "not opposed” to the Braunstein and R & B fee applications. Hence, the reasonableness of the former ruling is an issue which has been waived. See Mark Bell Furniture Warehouse, Inc. v. D.M. Reid Assocs., Ltd. (In re Mark Bell Furniture Warehouse, Inc.), 992 F.2d 7, 9 (1st Cir.1993).
.
See, e.g., In re Kendavis,
. For example, the bankruptcy court observed that Rome's role as counsel to CHM,
qua
debtor in possession, generated vigorous opposition to all three reorganization plans, as well as unusually intense antagonism from CHM’s general creditors (including Rome's longtime law partner). The clear implication, unverifiable in hindsight, is that CHM's reorganization prospects may have been better but for Rome's insistence on serving three clients simultaneously in these proceedings.
In re Kendavis,