THE ETHICS OF REPRESENTING DEBTORS AND CREDITORS IN BANKRUPTCY

Financial Services of Florida, Inc., 243 B.R. 806 (Bankr. M.D. Fla. 1999); In re Olson Industries, Inc., 222 B.R. 49 (Bankr. D. Del. 1997); In re Granite Partners, L.P., 219 B.R. 22 (Bankr. S.D.N.Y. 1998)(later-arising facts bearing on disinterestedness and adverse interest); In re Sauer, 222 B.R. 604 (8^th Cir. BAP 1998); In re TJN, Inc., 194 B.R. 400 (Bankr. D.S.C. 1996)(disclose additional compensation received); In re Cropper Company, 35 B.R. 625 (Bankr.M.D. Ga. 1983)(after appointment, DIP began doing business with entity owned in part by associate in firm of DIP's attorney); In re Central Ice Cream Company, 59 B.R. 476 (Bankr. N.D. Ill. 1986); In re ESM Government Securities, 66 B.R. 82 (S.D. Fla. 1986). See In re Wingspread Corp., 152 B.R. 861 (Bankr. S.D.N.Y. 1993)(postpetition bank merger resulted in DIP counsel suing one subsidiary of bank while representing another). ²³⁶See In re West Delta Oil Co., Inc., 432 F.3d 347 (5^th Cir. 2005)(special counsel took steps to acquire interest in debtor that were not consummated, and held to have an adverse interest requiring full disgorgement of all fees: "The ultimate success of these efforts is irrelevant -- the active pursuit of success is sufficient to give rise to an adverse interest here.") (court's emphasis); see also In re Condor Systems, Inc., 302

B.R. 55 (Bankr. N.D. Cal. 2003) (must disclose negotiations with debtor's shareholders on unrelated deal). ²³⁷ Bankruptcy Rule 9011; In re Pierce, 809 F.2d 1356 (8th Cir. 1987) (applying Rule 9011 to erroneous application to employ counsel); In re Jacobsen, 47 B.R. 476 (D. Colo. 1985); In re Dreiling, 233

B.R. 848, 870 (Bankr. D. Colo. 1999)(fundamental premise of our judicial system is that attorneys are officers of the court; when they address a judge it is virtually made under oath); Model Rule 3.1 and comment.

²³⁸ See In re Thrifty Oil Co., 205 B.R. 1009 (Bankr. S.D. Cal. 1997) (accounting firm's conflict check inadequate); In re Perry, 194 B.R. 875 (E.D. Cal. 1996)(trustee's attorney failed to conflict check purchaser of estate assets ‹ represented by own firm); In re Michigan General Corp., 78 B.R. 479, 482 (Bankr.

N.D. Tex. 1987)("Unfortunately, the burdens of the Bankruptcy Code are not met by a white heart. Negligence does not excuse the failure to disclose a possible conflict of interests."); In re Kelton Motors, Inc., 109 B.R. 641, 649 (Bankr. D. Vt. 1989)("attorney's ethical duty to inform the Court of the existence of possible ethical violations").

²³⁹In re Hart-Albin Co., 164 B.R. 331 (Bankr. D. Mont. 1992); In re Crook, 79 B.R. 475 (9th Cir.

B.A.P. 1987). On the other hand, general bankruptcy counsel has been sanctioned for failure to disclose lack of disinterestedness of other estate professionals. Matter of CF Holding Corp., 164 B.R. 799 (Bankr.

D. Conn. 1994). See In re Adam Furniture Industries, Inc., 191 B.R. 249 (Bankr. S.D. Ga. 1996)(lesser disclosures needed for special counsel); but see In re Maximus Computers, Inc., 278 B.R. 189 (9^th Cir. BAP 2002)(inadequate disclosures by special counsel); In re Fretter, Inc., 219 B.R. 769 (Bankr. N.D. Ohio 1998)(full disclosure of facts bearing on special counsel's adverse interests). ²⁴⁰The committee note to Rule 2014(a) explains that the court may consider connections with the U.S. Trustee's office in exercising its discretion to approve attorneys and other professionals, but the amendment is not intended to enlarge the definition of disinterested person. Because the U.S. Trustee's office reviews counsel's fee applications, certain ties to that office could be considered relevant to appointment. On the other hand, if such ties preclude appointment, counsel may have to refrain from representing trustees and DIPs, an extreme sanction to what is likely a very minor problem. ²⁴¹ In re Big Rivers Electric Corp., 355 F.3d 415 (6^th Cir. 2004); In re Kisseberth, 273 F.3d 714 (6^th

Cir. 2001); In re Lewis, 113 F.3d 1040 (9th Cir. 1997); In re Downs, 103 F.3d 472 (6th Cir. 1996)(disgorgement of all fees mandatory); In re Park-Helena Corp., 63 F.3d 877 (9th Cir. 1995) cert. denied, 116

S. Ct. 712 (1996)(strict compliance); In re Pierce, 809 F.2d 1356 (8th Cir. 1987); In re Arlans Departments Stores, Inc., 615 F.2d 925 (2d Cir. 1979); In re Solfanelli, 230 B.R. 54 (M.D. Pa. 1999)(disclose retainer given after court approval of retention and source of pre-approval retainer); In re Independent Engineering

Co., Inc., 232 B.R. 529 (1^st Cir. BAP 1999)(disclose draws against retainer dupplied by non-debtor and