*1 Supreme Court decision as well as the 5-4 COMPUTERS, Pioneer, In re exer- MAXIMUS bespeak need for the INC., Debtor. judgment.
cise of sound analogize judges to base- Info, Inc.; Ong; Henry For those who Djit COM-1 that the differences Salim; umpires, ball submit Lieu, Appellants, Celina Bankruptcy Appellate between the to use require bankruptcy judge Rules Wolkowitz, Chapter Trustee; Edward Rule bigger Bankruptcy strike zone Gibbs, Giden, Turner, Locher & 8002(c) neglect” than the dis- “excusable LLP, Appellees. judge, trict also has the latitude of who cause,” CC-00-1657-KMOB, “good Appellate needs for Rule BAP Nos. CC-00- 4(b)(4) 4(a)(5)(A)(ii) 1658-KMOB, ne- [or ] “excusable CC-01-1183-KMOB. glect.” Bankruptcy No. LA ER. 00-11124 Adversary No. LA ER. 00-02301 аppeal, of this notice
Under facts Bankruptcy Appellate United Panel States of entry judgment appellant was sent to of the Ninth Circuit. at a different address than all of the other been notices that had sent to her. The Sept. 2001. Argued Submitted objection her to the appellant had filed 8,May Filed 2002. 4, 2001, form May of the trustee’s order on yet bankruptcy judge inexplicably did disputed
not act on the form of the order July until bank’s assertion prejudice passage has of time —that made some more difficult to receivables counter-argu-
collect—is vulnerable ment that knew pendency the bank of thе outset, this from the at time protected
that it better its in- could have terest with to the respect receivables. participated ease trustee has not even appeal.
These enough factors vicinity Bankruptcy Rule zone, neglect” “excusable strike warrant- bankruptcy judge. closer look Accordingly, I DISSENT. *2 KLEIN,
Before: MONTALI and BRANDT, Bankruptcy Judges.
OPINION
KLEIN, Bankruptcy Judge. interlocutory appeals These constitute attempt by an a defendants fraudulent being prosecuted action that transfer for to disqualify op- the benefit estate posing counsel because a creditor is fees. the counsel’s effort to cоurt derail state fraud them, against litigation corpo- defendant corporation rate had their defunct insiders chapter bankruptcy file a 7 which there discharge. plaintiffs can be no state engaged prose- court was then counsel cute a fraudulent transfer ac- tion. The defendants two orders parrying attempts to rid themselves of their nemesis. appealed ratified employ- orders 11
ment as counsel under U.S.C. and, twice, § to disqualify 327 refused having firm the credi- paid for fees that it represents tor client still and that settlement opposed nuisance-value negotiate attemptеd directly the defense oppos- with trustee behind the back of ing counsel.
Although employ- we REVERSE § proeedurally ment under 327 as defec- tive, merely we VACATE orders refus- and REMAND ing to counsel the orders re- for clarification whether Randy Dorcy, J. Law Offices of Ran- J. flect authorization U.S.C. Info, CA, dy Dorcy, Nuys, 503(b)(3)(B) Van for COM-1 § to sue in for a creditor Inc.; Djit Ong. trustee, using lawyer, its own name of property benefit of the to recover for the Rocky Rocky Dorcy, W. Law Offices of estate. Encino, CA, Dorcy, Henry for Salim W. and Celina Lieu. clarify that publish 503(b)(3)(B) first, Gibbs, Giden, vitality:
Robert P. Locher retains Judge, CA, Turner, LLP, per the court Angeles, Los creditor authorized 503(b)(3)(B) Wolkowitz, for the Chapter Edward 7 Trustee. recover post- promise by with- Salim Maximus may sue in the trustee’s name estate be deliv- employed under 327 dated checks for would being out counsel “disinterested”; 19, Maxi- being On upon receipt. and without counsel ered October and, second, standing; has such creditor two checks mus issued and delivered 503(b)(3)(B) third, $1,225,000 §§ post- since signed by totaling Lieu exclusive, affirming decisions mutually not dated to November 1999. On October lawyer of a creditor’s suppli- from Arrow learned two other permitting, but should be understood had stopped payment ers that Maximus requiring, when Arrow cheeks to them. On October would suffice. permission bank, checks to the drawee presented the *4 Arrow had which notified that Maximus FACTS in stopped state payment. Arrow sued procedural context of these consoli- The 2, 1999, multi- alleging court on November appeals requires and that we dated related including conversion. ple counts fraud and plaintiffs allegations the true. accept Elec., Computers, Arrow Inc. v. Maximus so, we do of a When smacks (No. al., Angeles County Super. et Los Ct. “strategic” by defendants to divert effort 11/2/99). KC031873,filed allegations from merits of attention the state represented Arrow was the looting million by that stole about $7 Gibbs, the firm by court action law corporation. (“GGL Turner, Giden, LLP Locher & & sup- A number of wholesale electronics T”). Electronics, Arrow Inc. pliers, including By filed a volun- the time that Maximus (“Arrow”), were bilked out about $7 tary January 7 case all chapter microchips million in sold to computer had Maximus assets been transferred (“Maximus”), in Inc. Computers, Maximus and related to various entities individuals perpetrated by a fraud Maximus’ owners Salim. Lieu), (Henry spouse, Salim and his Celina working in with brother league Salim’s the & T Arrow offered services of GGL (Djit by Orig) corporation and a owned trustee, to the Wolkow- chapter Edwаrd Ong. itz, the version of prosecute the fraudulent transfer action with the fraud, The which oc- structure promise fees from that would be due the period in a four curred of about weeks if the only estate action was successful. simple. was had Maximus Salim agreements with preexisting trade credit applied approv- The for an order trustee who micro- ship vendors were induced T as various credit terms chips Maximus on microchips recover the or their counsel to 1999, including in September and October value, employment application presenting tendering upon to be issued de- checks papers noting represented that GGL T& the livery. microchips, Maximus received action, Arrow in the state court which checks, immediately the stopped issued T familiarity & was said make GGL checks, on the and transferred estate, logical litigation counsel for microchips to entities controlled T compensated & would be GGL family Salim members before the vendors successful, only if and that estate goods. reclaim could compensation upon would be based example, shipped microchips rendered to the estate and sub- For Arrow services 1, 1999, approval. for court tо Maximus on October mitted ed The neither with the trustee without GGL & T’s application disclosed knowledge. fact Arrow was GGL & T’s fees, compensation, nor the of that terms trustee, a partner who in a law continue rep- nor that & T would (“RD W”), & W as firm RD employed simultaneously with resent Arrow “general Rocky his Dorcy, counsel.” coun- approved the applica- trustee. The court Lieu, negotiated sel for Salim and May tion on through telling trustee RD & W without adversary proceeding and, Dorcy says,
GGL & filed an GGL & T reached a 2000, $137,000 July in the trustee in name settlement. Salim, Lieu, Ong, against Ong’s corpo- putative learned of settle-
ration, Inc., Info, alleging Com-1 causes of ment when Dorcy appear refused at a for, others, fraud, among action breach of victims, deposition. including The fraud contract, conspiracy conversion Arrow, dismay expressed to the trustee. requesting alleg- court avoid the led opposition This creditor the trustee to transfers, edly prefer- fraudulent avoid forsake the settlement. ences, and marshal assets. reacted fil- appellants frustrated *5 September proposed a amended (not ing two first motions. The involved employment order was tendered to the appeal) this to was a motion enforce the court accomрanying application. without an $137,000 putative settlement. The other The “By amendment’s substance was: disqualify was a second motion to GGL & Order, Amended Court acknowledges T, premise on the that GGL had an & currently T] the fees of are [GGL actual conflict estate because it ELECTRONICS, being paid by ARROW Arrow, continued represent op- which INC., a creditor.” There was no disclo- posed the putative trustee’s settlement of sure of what were and no those fees veri- adversary proceeding which GGL & fied GGL & T articulating statement from T was trustee. representing the continuing the precise relationship with motions, both opposed deny- The trustee Arrow. ing he agreed adding had and settle Salim, Lieu, Com-1, Ong objected and he had since learned of another mil- $2.27 the amended order and employment made lion in potentially avoidable transfers to a disqualify motion to GGL & T. Salim relative. objection, The court overruled bankruptcy court denied second order, signed the amended and refused to order disqualify by April motion to entered by disqualify GGL & T memorandum deci- 11, granted appeal. 2001. We leave to sion dated 2000. November were appeals Our first two filed Sal- JURISDICTION (No. CC-00-1657) im and Lieu and Com-1 jurisdiction had bankruptcy court CC-00-1658) (No. Ong and from thе No- 157(b)(1). §§ and via 28 U.S.C. order, vember 7 with motions for leave to jurisdiction have under 28 U.S.C. appeal, granted. which we 158(a)(3). CC-01-1183, No. appeal,
Our third is ISSUES 11, 2001, April from an order entered joint GGL & after again Although appellants’ spec- brief refusing they boil allegedly potential twenty-four questions, it with a set- ifies down interfered tlement Lieu to three negotiat- that Salim and had issues. correctly- T was the facts fit the that would pattern
1. Whether GGL & While T, special litiga- the trustee as employed by permit regardless of whether under 11 327 while “disinterested,” tion counsel U.S.C. is act under representing a creditor. concurrently for a creditor counsel by the court to sue in the trust- authorized creditor client 2. Whether GGL & T’s ee’s name to recover transferred eligible standing prosecute has debtor, clarify trial court must in the name of fraudulent transfer action T’s status we would affirm. before 503(b)(3)(B). the trustee under U.S.C. representation 3. Whether GGL & T’s disqualifying plaintiff is affected conflict, interest. There is a fundamental procedural
defect in the & T as special litigation counsel REVIEW STANDARD OF Interpretations of statute Concurrent of trustee representation questions Tighe of law de novo. reviewed if, only can permitted creditor (In Entm’t, Home Inc. Celebrity Ce if, harbor, it is within the safe Entm’t, Inc.), lebrity Home F.3d requires which that other creditors and the Cir.2000). (9th Orders on opportunity U.S. trustee have the ob- disqualification re professionals are ject. objection, If there is then the court viewed for abuse discretion. First In must determine whether an actual conflict Corp. terstate v. CIC Bank Inv. re CIC of interest exists. (9th *6 52,
Inv. 175 B.R. 53 Cir. BAP Corp.), 1994). statutory object opportunity pre- apply It is an abuse of discretion to wrong legal by the rule. necessitates Gschwend Mar scribed disclosure (In (9th Markus), 556, kus B.R. 559 appropriate be information available 2001). Cir. BAP object. those are entitled to To this who end, employment must application papеrs We do not reverse for errors affect of, full among include disclosure other rights parties substantial of the things, person’s “all of the connections any affirm supported by reason application with” creditors that the 2111; the record. 28 U.S.C. Fed. by a the accompanied verified statement of incorporated by R.Civ.P. R. Fed. person setting employed to be forth the 9005; California, Bankr.P. Dittman v. with, others, among connections creditors. (9th Cir.1999); F.3d 1027 n. 3 Polo 2014(a). R. Bankr.P. Fed. Bldg. Group, Inc. v. Rakita re Shu bov), (9th B.R. Cir. BAP requisite & T has made GGL never 2000). in requisite disclosure form. The ini-
tial application repre- refers to GGL & T’s DISCUSSION pre-bankruptcy sentation of in the Arrow litigation represents & T’s GGL begin prоcedural error nature, will compensation be based T employment of GGL & that necessi- extent, and value of services rendered vacating tates the employment order. estate, will be court determined Then turn to the question we whether the ordinary application, as an fee and that employment error was harmless with re- spect to disqualify liability the refusal to counsel. be no fee in excess of there would adversary transfer recovery.1 accompanying proceeding, dec- fraudulent actual May which is identical to the 11 order & T’s sole represents laration GGL pаrent bankruptcy entered in the case ex- representation with Arrow is connection cept following language: “By for the action, that & stayed state court GGL Order, acknowledges Amended the Court retainer, monetary T has not received currently T] the fees of & are [GGL any award not exceed any and that fee will ELECTRONICS, being paid ARROW recovery.2 INC., a creditor.” supporting applica- No any reference to continuing There is no accompanied pro- tion or declaration T representation of Arrow GGL & or to posed amended order. paying pros- Arrow as GGL & T’s fees for triggered appellants’ This unsuccess- ecuting fraudulent transfer objection ful and first mo- any action. Nor is there indication of how T. tion to GGL & Arrow’s & T’s fees will impact applications says fee that GGL & The facts that Arrow is it will make. purportedly represent GGL & T’s fees for than, 20, 2000, September On more four ing the trustee and that T contin 11May employ- months after the initial represent ues to Arrow are “connections” order, lodged proposed ment within the Rule meaning with a creditor 2014(a) order, bearing caption amended of the that must be disclosed in the em- pertinent portions any attorneys represent 1. The of the of the Firm's nor Estate, application are: adverse to the interest attorneys & and [GGL T] disinterest- T], prior 2. .. Firm [GGL .The 101(14) persons ed of the Bank- filing petition in this matter filed ruptcy Code. against state court action the Debtor on Application Employ Special & as [GGL T] ELECTRONICS, behalf of ARROW INC. Litigation (emphasis supplied). Counsel ("ARROW”). uniquely Mr. Griffin is famil- and[,] iar with the issues in this case there- represents, perti- 2. GGL & T's declaration fore, position litigate best in the issues parts: nent concerning the transfer of the Debtor’s as- my knowledge ... To the best of [GGL sets .... *7 Debtor, 6 T] has no affiliation compensation 5. The Firm's will be based creditors, interest, any party or other in the nature, extent, upon the and value of the any person United States Trustee or em- services it renders to the estate. All fees ployed by the United States the office of approval will be submitted to the Court for Trustee, except my representation AR- Bankruptcy in accordance with the Code for of Superior ROW in the Court Rules, requirements and the the and of of- above-referenced litigation.... par- fice United States Trustee. The monetary 7. have not received a retainer agree Chapter ties understand and that the 7 case. I understand and [have] in this proposed Estate shall not be liable to the my agreed Firm's fees in connection that recovery Speсial there is a Counsel unless be submitted to the with this matter will the assets in an amount at least Estate's approval accordance with the Court for in equal requested. to the and costs fees Rules, Bankruptcy and the re- Code and [sic] To the best of the Debtor's knowl- edge, any quirements of the office of the United States neither & nor of its [GGL T] Further, recovery attorneys any party unless there is a has a connection with Trustee. interest, accountants, attorneys the Estate’s assets which I believe were or fraudulently conveyedaway in an amount at other than as set forth herein and in the costs, Chaptеr Except equal my accompanying least declarations. fees Application and 7 Estate shall not be liable to the Firm. be set forth in this Declaration], (emphasis [accompanying Gerald A. Griffin to the best of Declaration of supplied). Applicant’s knowledge, [Declarant] neither 196 analysis “actual conflict” neces- and in the verified it did the application
ployment 327(c) § safe applica sary to the harbor. accompanies that statement 2014(a); Neben & tion. Fed. R. Bankr.P. employment order present 327 (In Starrett, Corp. Fin. Inc. v. Chartwell If, pro- must REVERSED. further be F.3d 880- Corp.), Park-Helena 63 rе court, in the trial the United ceedings (9th Cir.1995); In re B.E.S. Concrete 82 standing trustee or a creditor with States (Bankr. Prods., Inc., 93 B.R. objects presented after & T has E.D.Cal.1988); States Azevedo United then it will requisite application papers, Azevedo), B.R. 910-11 question appropriate become assess (Bankr.E.D.Cal.1988). conflict of interest” within the of “actual 327(c) meaning of the safe harbor. Moreover, payment creditor fees are ma continuing representation and the and the
terial
to both the
II
327(c)
analysis of the
safe harbor. Such
refusal to
attacking
court’s
relating to
typically
situations
raise issues
T,
ask us to
disqualify
appellants
lawyer’s
duty
loyalty
and the
ethical
disqualified
hold that
the firm
be
must
identity
They
potential
of the client.
also
under
because
is not “disinterested”
fee awards that coun
ly affect the eventual
§ 327.
says
sel
it will seek.
In re Park-Helena
agree
imposes
While we
Corp.,
and be
disclosed.
may affirm the
refusal
court’s
carpet.
swept under
sup
reason
counsel
ported by the record. Dittman v. Califor
application
There is no declaration or
nia,
Shubov,
3;
F.3d at 1027 n.
In re
Ar-
that addresses the “connections” with
A T expressly neither the trustee nor GGL & 503(b)(3)(B) carries for Section so, invoked it.4 If had done we would long-settled authority under for ward the affirm. 64a(1) §Act for creditors Bankruptcy
mer
approval
court’s
While
to recov
in the name of the trustee
sue
the amended
order that ex-
for the benefit of the estate
property
er
plicitly recognized Arrow was
compensated
be
as administrative
and to
fees,
ensuing
together
&'T’s
with its
refus-
Godon, Inc.,
In re
275 B.R.
expenses.
firm,
con-
al to
could be
(Bankr.E.D.Cal.2002).
561-63
503(b)(3)(B)
§
strued as a
authorization on
harm-
premise
finding
which we could
acting
A creditor
under that au
error,
course is to ask the
prudеnt
less
thority
prior permission
with the court’s
clear
bankruptcy court to be
about
statutory standing, not some form of
has
T is
basis on which GGL &
proceeding.
Id.,
B.R.
non-statutory standing.
at
503(b)(3)(B)
§
point about
at
key
563-66.
juncture is that
its mere existence
503(b)(3)(B) and 327 are
Sections
appellants’ argument
being
belies
“not
exclusive,
necessarily mutually
but the
not
or that
of counsel
disinterested”
compensation
theories of
are different.
requires disqualification.
by a creditor
503(b)(3)(B)
§
acting under
Professionals
requirement of
Since the “disinterested”
client,
have the authorized creditor as
503(b)(3)(B)
§
apply
327 does
(with
paid by that client
the client
be
suits, it
that lack of “disin-
creditor
follows
bearing
being
the risk of not
reimbursed
disqualification.
is no reason for
terest”
503(b)(4))
and need not
“disin
be
Likewise,
the fact
327(a). Id.,
required by
terested”
lawyer
a creditor to use its own
authorizes
566-68; 4
King,
al.,
B.R. at
L.
et
Collier
recover
for the benefit
Bankruptcy
(15th
ed.
rev.
503.11[4]
on
estate,
given
permis-
once the court has
2000).
sion,
that the au-
compels
conclusion
lawyer may
paid
thorized creditor’s
po
gatekeeper,
The court acts as
disqualification on
its client without fear of
as be
any dysfunction
lices
arises
that account.
trustee,
authorized creditor and the
tween
Thus,
quеstion
disqualification
to scrutinize com
power
and retains the
503(b)(3)(B),
9019(a);
acting under
Fed. R. Bankr.P.
Go of counsel
promises.
*9
& T
don,
irrelevant whether GGL
is
tion CONCLUSION willing are we to affirm without clarifica- bankruptcy court its discre- abused Accord- precise tion of GGL & T’s status. tion when it authorized under ingly, we will VACATE and REMAND. prior compliance § without & T’s procedure prescribed by Ill Accordingly, employ- and Rule 2014. In deciding appeal, this we havе treated ment order under 327 must be RE- standing appellants’ possible lack of § 327 may VERSED. The court authorize non-jurisdictional issue that has been if, if, only fully GGL & T having not been raised. Persh- waived complies with 327 and Rule 2014. Park Villas Homeowners Ass’n error, however, Co., may This be harmless. Pac. Ins. 219 F.3d 900-01 United (9th Cir.2000); Godon, employment, may B.R. the court at 564-66 Without (distinguishing among “prudential proceed pursuant stand- T to authorize GGL & “statutory 503(b)(3)(B), ing,” standing,” “appellate representing suing Arrow standing”). and “constitutional standing,” in the name of the trustee. We VACATE refusing REMAND the to dis- orders Nevertheless, have because T, bankruptcy that the qualify GGL so implications attempts pursue for futurе may clarify capacity court which this case, diversionary strategic appeals adversary proceeding being prosecuted. appellants we note that have estab If the that the action is they “appellate standing,” have court determines lished 503(b)(3)(B), “persons ag proceeding the terms requires which including payment terms grieved” “directly pecuniarily employment, or be non-payment by who the risk of adversary’s affected” their choice of bears estate, demonstration, are between GGL counsel. such a Without
T—I osos employment of amended compensation from Reversal T and Arrow. While 503(b)(4), by § Ar- order should make reversal of the bank- governed is the estate among court’s refusals to ruptcy allocate two row and GGL & T follow as a matter of course. non-payment by the risk of themselves private arrange- contractual estate. Those II appellants’ business.
ments are none of the I depart majority’s Where from the MONTALI, Bankruptcy Judge, II, analysis proceeds is in Part where it concurring dissenting. give now-disqualified the trustee and his map counsel a road to follow a trail
I
attempt
never considered
salvage
attempt
pursue appellants.
thеir
majority’s
I
agree conclusion
majority begins
assump-
with a false
approving
Part
that the amended order
tion to reach the conclusion that GGL &
T
employment
of GGL & must be
an authoriza-
employment
T’s
constituted
pointed
reversed. As
out in the discus
for Arrow
tion
to seek
recover assets
sion,
application
the amended
lacked all of
of
estate as permitted
for
benefit
supporting
necessary
to deter
papers
503(b)(3)(B).
by Bankruptcy Code section
eligible
mine
T
for
whether GGL & was
Bankruptcy
Code sec
“...
suggests
pres-
It
the record
327(a),
upon by ap
tion
the section relied
503(b)(3)(B)’s
autho-
pattern
ents thе
of
pellee.
proper
There has never been a
to sue in the trustee’s
rization for creditors
”
T
employment GGL & under
sec
name ....
look to the record for
2014(a).
Rule
In my
tion and
view this
facts,
fact,
As a matter of
patterns.
defect is fatal to
case.
appellees’
nothing.
It
nothing.
Arrow did
asked for
majority
No one other
than the
ever
steadfastly
& T has
refused with
503(b)
thought of
as a solution to the
justification
out
to disclose the details of
presented.
party contemplat-
dilemma
No
Arrow,
arrangements
up
with
even
503(b)
availability
requested
ed the
or
oral argument
appeal.
the time оf
on this
Godon,
relief under it.
the trustee and
It should not be rewarded for such arro
compromise,
the creditor entered into a
gance,
given anything
nor should it
else
governed by
agreement
Rule
That
outright
other
than its
termination as
503(b)(3)
(b)(4).
§§
did not mention
or
If
counsel to
trustee.
Arrow wants
Godon,
hearing
B.R. at 561. At the
work,
it. The
pay for GGL & T’s
so be
possibility
reaching
someone raised
Starrett,
estate should not. See Neben &
503(b).
I can
the same result under
Corp.
Inc. v. Chartwell Financial
re
Thus,
only guess who
that creative.
was
(9th
Corp.),
Park-Helena
for reasons bankruptcy appeal, аt the court or on we majority does not treat with the change underlying events in cannot representa- whether & T’s issue of GGL to reach. get order to to a result we wish appellee has been tainted tion of majority imports Here the section of The ma- disqualifying conflict of interest. that allows fees to be Bankruptcy Code jority has declined to elaborate on first obtains author- paid to a creditor who issue; simply resolve the matter would ity to recover an asset transferred or con- by observing pres- the trustee was debtor, actually by the and then cealed go court to for- surеd fact, applied it. the trustee recovers thought ward with a settlement that he (for above, sloppy in a the reasons stated creditors, opposed by and that he no was manner) employ GGL & as his it longer supported himself. Thus would counsel. There has been no authorization difficult, if to accuse impossible, anything. Nor has there for Arrow do T, counsel, disqualifying GGL & his of a any recovery property transferred been acting it in a conflict when was manner brought or concealed. The action Ar- only the wishes not consistent with far against appellants seeks more client, row, trustee, putative but recovery than within the said, being well. That the issue of 503(b)(3)(B); purview of includes disqualification upon based a conflict is fraud, upon counts breach of con- based mind, above, my moot in as set forth be- conspiracy. tract there has Since (and cause there has never been never all, recovery willing- at & T’s been no be) proper authorization of GGL should any recovery paid only ness to be out of employment. & T’s 503(b)(3) any stretching makes of section as well as premature to cover facts these
inappropriate. Finally, there has been no request compensation. simply should reverse the orders fall where chips and let the may.