THE ETHICS OF REPRESENTING DEBTORS AND CREDITORS IN BANKRUPTCY

the restructuring accountants and business advisors was remanded from bankruptcy court to state court, then settled for $185 million.²⁶²

1. Objections to the quality of services provided, and their benefit to the bankruptcy estate, are considered by the court when awarding fees to a professional employed by the estate.²⁶³ If such objections are raised, or if they could have been raised, a fee award or disgorgement order thereafter has been held to bar later malpractice claims under the doctrine of res judicata.²⁶⁴ The 2005 amendments to the Bankruptcy Code provide for exclusive jurisdiction of the Bankruptcy Court over all claims or causes of action that involve construction of Bankruptcy Code §327 or rules relating to disclosure requirements under that section, but not simple malpractice.²⁶⁵
2. If a professional deliberately conceals evidence of ethical violations, the professional may nonetheless be charged with a claim of fraud on the court, despite an apparent release in a court order.²⁶⁶ A judgment may be set aside under Rule 60(b) at any time for fraud on the court.²⁶⁷ One court held it could set aside an order approving counsel's employment and order disgorgement of fees awarded. It also held that the Chapter 7 trustee stated a claim for fraud on the court when the DIP's counsel avowed no prior connections with the debtor and no adverse interest, when in fact it had represented the debtor's general partners prepetion in setting up limited partnerships into which the debtor's assets were transferred.²⁶⁸ Similarly, an exculpation of professionals privision in a confirmed plan was held not to protect counsel from sanctions for an actual conflict of interest which they knowingly failed to disclose.²⁶⁹
3. Some DIP professionals have sought to include indemnity provisions in their engagement agreements, and to limit any damage claims to disgorgement of fees received. Courts are divided in approving such indemnity language in accountant engagement agreements, with some agreeing if there is an exception for bad faith, self-dealing, willful or reckless misconduct or gross negligence.²⁷⁰ Efforts to divert the forum for malpractice claims to arbitrations or bankruptcy or federal court without a jury have likewise received mixed results to date.²⁷¹ Professional conduct rules for attorneys prohibit agreements prospectively limiting liability to a