Brooks Custom Application, LLC
The matter before the Court is the Debtor‘s Application to Employ Watkins, Ward and Stafford (“WWS“) as accountant [Dkt. #46] (the “Application“). The United States Trustee (the “UST“) filed an initial response [Dkt. #54], an amended response [Dkt. #78], a memorandum of authorities addressing the meaning of “relative” under
For the reasons set forth below, the Court concludes that none of these issues, individually or collectively, require disapproval of the Application. WWS‘s status as a prepetition creditor raises a disinterestedness concern, but one that may be cured under the circumstances presented here, consistent with
I. JURISDICTION
The Court has jurisdiction pursuant to
II. BACKGROUND
The Debtor filed this Chapter 11 case on September 16, 2025. The Application seeks authority to employ WWS as the Debtor‘s accountant. In the Application, the Debtor disclosed that Jason Brooks, a principal of WWS, is a cousin of John Paul Brooks, the Debtor‘s owner and
The UST later amended its objection to add that WWS was also a prepetition creditor of the Debtor in the scheduled amount of $35,536.18 and therefore was not disinterested absent a waiver of that claim. The amended response cited In re Fish & Fisher, Inc., No. 09-02747-EE, 2010 WL 5256992 (Bankr. S.D. Miss. Dec. 17, 2010), for the proposition that an applicant holding an economic stake in the estate‘s payout cannot satisfy the disinterestedness requirement.
Thereafter, the UST filed a memorandum on the “relative” question. In that memorandum, the UST argued that the operative “common law” under
The Debtor, in turn, filed a memorandum brief asserting that a first cousin is not within the third degree of consanguinity and therefore is not a “relative” under
At the hearing, John Paul Brooks testified that he is the owner and day-to-day decisionmaker for the Debtor, a custom application business that sprays chemicals and spreads fertilizer, lime, and chicken litter and employs thirty-three people. He testified that WWS has handled the Debtor‘s accounting for approximately twenty-three years, including payroll, monthly financial statements, tax work, and related accounting services. He further testified that replacing WWS would be “a pretty good mess,” would require substantial time to get a new accountant up to speed, and that the Debtor did not have excess funds to pay a new firm to catch up on years of accounting history.
John Paul Brooks also testified that WWS was owed $35,536.18 as of the petition date and that WWS had agreed to waive those fees. He further testified that, after the petition date, the Debtor paid WWS a $15,000 retainer and made additional postpetition payments without prior Court approval, although he could not state the precise total at the hearing. The record as a whole reflects that the total postpetition payments approached the amount of the prepetition claim, a point emphasized by the UST. He acknowledged he had not obtained the waiver in writing. On cross-examination, he also confirmed that the Debtor had not looked for another accounting firm and that WWS was listed on both the original and amended schedules as an unsecured creditor in the amount of $35,536.18.
Jason Brooks also testified that the firm could remain objective notwithstanding the cousin relationship and that it would assist with monthly operating reports, tax returns, withholding returns, and likely cash-flow projections for a plan and disclosure statement. At closing, the Debtor‘s counsel expressly invoked the “let‘s be practical doctrine” and argued that if doctrines such as necessity or critical-vendor workarounds mean anything, they should apply here because of the time and effort invested in the relationship. The UST responded that critical-vendor doctrine concerns payment issues, not the employment of professionals governed by
A. Overview of the Parties’ Positions
Stated more succinctly, the UST‘s position is that the Application must be denied for three related reasons. First, Jason Brooks is the first cousin of the Debtor‘s only owner and managing member, John Paul Brooks, which, in the UST‘s view, makes him a “relative” under
The Debtor‘s position is likewise threefold. First, the Debtor contends that a first cousin is not a “relative” under
B. Statutory Framework Under § 327(a)
Section 327(a) provides that the trustee, or a debtor-in-possession through
Section 101(14) defines a “disinterested person,” in relevant part, as a person that “is not a creditor. . . or insider” and “does not have an interest materially adverse to the interest of the estate.”
Section 1107(b) modifies this framework in Chapter 11 by providing that a professional is not disqualified “solely because of such person‘s employment by or representation of the debtor before the commencement of the case.”
Before diving in, the point bears emphasis that the Bankruptcy Code does not say any family relationship, standing alone, automatically disqualifies a professional. Nor does
C. Whether a First Cousin is a “Relative” Under § 101(45)
The UST first raises the issue that Jason Brooks is a “relative” under
The Bankruptcy Code does not define “common law” in this context, and there is no general federal common law. In re Hydraulic Indus. Prods., Co., 101 B.R. 107, 108 (Bankr. E.D. Mo. 1989) (citing, Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). In the absence of a uniform federal rule, courts look to applicable nonbankruptcy law, including state law, to inform the content of “common law” for purposes of
The parties agree that the Bankruptcy Code directs the Court to determine degree “as determined by the common law.” Where they part company is over what that phrase means. The UST argues that Mississippi common law, as reflected by Black v. State, 187 So. 2d 815 (Miss. 1966), supports the canon-law method of computation. The UST also relies on bankruptcy
In Gray, 355 B.R. at 780-81, a preference action, the bankruptcy court considered both canon-law and civil-law methods of calculating consanguinity under Missouri law and ultimately adopted the canon-law method, reasoning that it better aligned with the policy underlying
By contrast, Hydraulic, 101 B.R. at 109, adopted the civil-law method and held that first cousins are not within the third degree. Hydraulic treated the statutory text more literally and refused to equate “common law” with a broader canon-law approach when the practical result would be to expand the statutory definition of “relative.” Id.
In re Olympia Office, LLC, 562 B.R. 8, 12 (Bankr. E.D. N.Y. 2017), is particularly useful because it carefully collected the sparse authorities and explained that relatively few bankruptcy decisions have addressed the meaning of “common law” in
Mississippi authorities point in different directions depending on context, and that is precisely why Black, 187 So. 2d 815, is less helpful here than the UST suggests. Black was a criminal recusal case. Id. at 816. The court there held that a trial judge should have recused where he was first cousin to a prosecution witness. Id. at 819. Notably, Black did not undertake any analysis of degrees of consanguinity or attempt to determine whether first cousins fall within a particular degree. Rather, it arose under Mississippi constitutional and judicial-disqualification principles, which historically have been construed broadly to preserve public confidence in the judiciary. Indeed, the Mississippi Constitution provides, in sweeping terms, that “[n]o judge of any court shall preside on the trial of any cause” where a party is “connected with him by affinity or consanguinity,” without limitation as to degree.
The Debtor‘s reliance on In re Estate of Ford, 552 So. 2d 1065 (Miss. 1989), is more persuasive, though not because it directly construes
The Court finds the better view is the civil-law method for three reasons. First, the statutory text itself is limiting. Congress did not say “family member.” It did not say “close relation.” It said, “within the third degree.” A method that transforms first cousins into third-degree relatives broadens the statute rather than construing it narrowly. Second, the canon-law method‘s principal support in the cases arises from context-specific policy choices, most notably in preference law. Gray, 355 B.R. at 781-82, expressly chose a method that best fits
Third, the civil-law method better respects the structure of
D. Even If Jason Brooks Were a “Relative,” that Fact Alone Would Not Require Disapproval of the Application
Even assuming, for the sake of completeness, that Jason Brooks was a “relative” within the meaning of
These requirements are related but distinct. The Fifth Circuit has emphasized that both inquiries are functional, not merely formal. A professional may fail the disinterestedness prong in certain circumstances, such as where it is a creditor, but the adverse interest analysis focuses on whether the professional possesses “either an actual or potential dispute in which the estate is a rival claimant” or a predisposition that would impair its duty of loyalty to the estate In re Am. Int‘l Refinery, Inc., 676 F.3d 455, 461 (5th Cir. 2012) (citing, In re West Delta Oil Co., 432 F.3d 347, 356 (5th Cir. 2005)).
Stated differently, the question is not simply whether a relationship exists, but whether that relationship creates a meaningful risk that the professional‘s judgment or loyalty will be impaired.
There is also no evidence that WWS has used its relationship with the Debtor to further a competing interest, to influence litigation involving the estate, or to suppress disclosure of adverse facts. To the contrary, the firm is performing routine but essential accounting functions such as payroll, tax reporting, monthly operating reports, and financial projections, all of which are subject to oversight by the Court, the United States Trustee, and parties in interest.
The Court does not minimize the significance of familial connections. Such relationships must be fully disclosed and carefully scrutinized, and in some cases they may be disqualifying. But they are not self-executing bars to employment under
E. WWS‘s Prepetition Claim and § 1107(b)
The UST‘s amended objection correctly identifies the most straightforward statutory problem: WWS was a prepetition creditor of the Debtor in the scheduled amount of $35,536.18. That fact was confirmed by John Paul Brooks at the hearing. Under
Courts are divided on this issue. In In re Talsma, 436 B.R. 908, 915-18 (Bankr. N.D. Tex. 2010), the court concluded that
This Court finds that reasoning persuasive to the extent it recognizes that creditor status arising solely from prior professional services does not automatically render the professional disinterested. At the same time, creditor status remains significant because it creates a financial stake in the distribution of estate assets and must be addressed to ensure compliance with
Here, the record establishes that WWS‘s claim arises solely from its prepetition accounting services to the Debtor. More importantly, both the Debtor‘s principal and Jason Brooks testified under oath that WWS has waived its prepetition claim. That testimony was clear, unequivocal, and uncontroverted. The Court credits that testimony and finds that WWS does not intend to pursue recovery of its prepetition claim. Accordingly, the Court concludes that WWS‘s prepetition claim does not require denial of the Application.
That said, the absence of a written waiver presents an avoidable risk. A written, unconditional waiver provides clarity to the Court, the United States Trustee, and other parties in interest, and reduces the likelihood of later disputes regarding the scope or effectiveness of the waiver. For that reason, the Court strongly encourages parties in future cases to document any such
F. Adverse Interest Analysis
Section 327(a) independently requires that a professional “not hold or represent an interest adverse to the estate.” This inquiry is distinct from disinterestedness and focuses on whether the professional has either (i) an economic interest that would tend to lessen the value of the estate or create a dispute with the estate, or (ii) a predisposition that would impair the professional‘s duty of loyalty. West Delta Oil Co., 432 F.3d at 356; American Int‘l Refinery, 676 F.3d at 461-63.
The Court finds that WWS does not hold or represent an interest adverse to the estate. First, familial relationships alone do not create an adverse interest. There is no evidence that WWS has used that relationship to gain an advantage over other creditors or to influence estate administration improperly. Second, WWS‘s prepetition claim, while relevant to disinterestedness, does not establish a materially adverse interest in this case. The record reflects that the claim arises solely from prior professional services and that WWS has waived that claim through clear and unequivocal sworn testimony. There is no evidence that WWS retains any direct or indirect financial stake in the estate on account of that claim.
This conclusion is consistent with decisions denying employment where a professional retains a continuing financial interest tied to the outcome of the bankruptcy case. For example, in In re Fish & Fisher, Inc., No. 09-02747-EE, 2010 WL 5256992, *5-6 (Bankr. S.D. Miss. Dec. 17, 2010), the court found that an accounting firm held an adverse interest where, despite transferring its prepetition claim, the consideration it received remained contingent on distributions from the estate. As a result, the firm stood to gain or lose financially depending on the outcome of the case, creating a direct incentive to act contrary to the estate‘s interests. Id.
Finally, the nature of WWS‘s engagement supports this conclusion. The services to be performed, payroll, tax reporting, financial statements, and related accounting functions, are routine, transparent, and subject to oversight by the Court, the UST, and parties in interest. Accordingly, the Court finds that WWS does not hold or represent an interest adverse to the estate within the meaning of
G. Improper Postpetition Payments
The parties dispute the precise total and whether the funds are being held as retainers, but that dispute does not affect the Court‘s analysis. Regardless, these payments were improper. Professional compensation in Chapter 11 is not governed by informal business custom. Sections 327, 330, and 331 require court supervision. A debtor may not simply continue paying a professional postpetition as though the bankruptcy filing changed nothing. The UST is correct on that point. The Court nevertheless concludes that the payments, standing alone, do not require disapproval of the Application.
Several factors support this conclusion. First, the payments were disclosed. The Debtor‘s principal testified candidly regarding the transfers, and there is no indication that the Debtor attempted to conceal them. Second, the record reflects that the payments were intended as retainers
Third, the payments do not establish that WWS holds or represents a materially adverse interest. Rather, they reflect noncompliance with the procedural requirements governing professional employment and compensation. The appropriate remedy for such noncompliance is disclosure, supervision, and, where warranted, disgorgement, not necessarily denial of employment where the requirements of
That said, the Court shares the UST‘s concern that the amount of postpetition payments closely approximates the prepetition claim. The Court will not permit postpetition transfers to operate, in substance, as a recovery of a waived prepetition obligation. If subsequent fee applications or disclosures demonstrate that the postpetition payments function as a workaround to repay the prepetition claim, the Court will revisit the propriety of WWS‘s employment and may order disgorgement or other relief.
Accordingly, WWS‘s compensation shall be subject to review under
H. Conditional Approval Despite Incomplete Rule 2014 Disclosure
Rule 2014 requires any professional seeking employment to disclose, “to the best of the applicant‘s knowledge,” all connections with the debtor, creditors, and parties in interest.
The Fifth Circuit has repeatedly emphasized the importance of strict compliance with Rule 2014. Professionals who fail to disclose their connections “proceed at their own risk,” and such failure may justify denial of employment or disgorgement of compensation. West Delta Oil Co., 432 F.3d at 355. At the same time, the disclosure obligation is broader than the standard for disqualification, and a failure to disclose does not automatically require denial of employment in every case.
As the Fifth Circuit later clarified, a professional may lack a disqualifying adverse interest yet still be subject to sanctions for inadequate disclosure. Amer. Int‘l Refinery, 676 F.3d at 465-66. In American International Refinery, the court affirmed substantial sanctions for disclosure violations even though the professional was not disqualified and was permitted to remain employed. Id. The appropriate remedy therefore depends on the totality of the circumstances, including the nature of the omission, whether it was intentional, whether it concealed a materially adverse interest, and whether the record can be supplemented without prejudice to the estate. Id.
Here, the Court finds that supplementation is sufficient. Although the initial disclosure was incomplete, the relevant relationships are now fully developed in the record. Through briefing and sworn testimony, the Court has been presented with the familial relationship, the prepetition claim and its waiver, the Debtor‘s ownership and operations, WWS‘s role, and the postpetition payments. There is no indication that the omission was willful or designed to conceal a disqualifying conflict, and no party has identified resulting prejudice to the bankruptcy estate.
I. Doctrine of Necessity Does Not Override § 327(a)
The Debtor‘s doctrine-of-necessity argument deserves direct treatment because it was a substantial part of the briefing and oral argument. The Debtor contends, in substance, that WWS is so familiar with the Debtor‘s operations that replacing it would be inefficient, expensive, and detrimental to the reorganization. That practical point is well supported in the record. The Debtor has used WWS for about twenty-three years. WWS handles payroll, tax reporting, financial statements, and bankruptcy reporting. Jason Brooks testified that the firm‘s staffing model lowers costs and that the firm had already devoted roughly 130 hours to the matter, only 26 of which were his, demonstrating that work is delegated efficiently. John Paul Brooks testified credibly that replacing WWS would create a “mess” and that the Debtor lacks excess funds to pay a new firm to get up to speed.
Nevertheless, the UST is equally correct that doctrine of necessity is not the source of authority for employing professionals. The Debtor‘s cited cases, e.g., In re CoServ, L.L.C., 273 B.R. 487 (Bankr. N.D. Tex. 2002), and similar cases addressing critical vendor relief, involved payment of critical vendors, not the qualification of professionals under
Even so, that does not mean the practical realities are irrelevant. Once the statutory obstacles are resolved, here, by concluding that first cousins are not “relatives” under
IV. CONCLUSION
This case presented an unusual but important threshold question under
The more serious statutory problem is that WWS was a prepetition Creditor. That issue has been sufficiently addressed on this record through the waiver established by sworn testimony. The postpetition payments were improper and cannot continue outside Court supervision, but they do not require outright disapproval of the Application so long as they are fully disclosed, subject to review, and not used to recover the waived prepetition claim.
The Court is also persuaded by the practical realities of this Chapter 11 case. WWS has served the Debtor for over twenty years, is deeply familiar with the Debtor‘s operations and systems, and can perform the necessary accounting work more efficiently and at lower cost than a newly retained firm. Those considerations do not override
Based on the above, it is ORDERED that the Debtor‘s Application to Employ Watkins, Ward and Stafford as Accountant [Dkt. #46] is APPROVED, subject to the following conditions:
- Within seven (7) days of entry of this Order, Watkins, Ward and Stafford shall file a supplemental disclosure under
Federal Rule of Bankruptcy Procedure 2014 identifying:- All postpetition payments received from the Debtor;
- The date and amount of each payment;
- Whether such funds are being held as retainers, have been applied to fees, or remain unapplied; and
- Any connection with related entities of the Debtor relevant to the services to be rendered in this case.
No further postpetition payments shall be made to Watkins, Ward and Stafford absent Court approval or pursuant to a retainer arrangement expressly approved by further order of this Court. - Any compensation sought by Watkins, Ward and Stafford shall be requested by application under
11 U.S.C. §§ 330 and331 and shall remain subject to review and approval. - The Court reserves the right to revisit this employment if later disclosures, fee applications, or other evidence demonstrate that the waived prepetition claim was indirectly recovered through postpetition payments or that any materially adverse interest exists.
##END OF ORDER##
Judge Selene D. Maddox
United States Bankruptcy Judge