THE ETHICS OF REPRESENTING DEBTORS AND CREDITORS IN BANKRUPTCY

and ignoring other factors applicable in cases where concealment is not intentional. Nondisclosure harming the estate may be sanctioned without the court also finding a conflict of interest.

5. The court may order fee disgorgement to the estate even if the fees were originally paid by third parties.
6. Courts have also required disgorgement of fees received from the estate without prior court disclosure, and reduced fees for nondisclosure of all compensation arrangements. In the absence of a fee award, an attorneys' fees claim under an engagement agreement for Chapter 11 or Chapter 12 services is unenforceable, even if the case is dismissed.
7. DIP clients suffer repercussions from disqualification after the case is underway, as well. Withdrawal may require duplicative catch-up time of new counsel that a company in distress may not easily afford. The DIP may also suffer from the court's vacating of critical orders obtained by disqualified counsel.
8. An evidentiary hearing is not required before a court requires disgorgement of fees on grounds of disqualification. Courts are divided on whether a decision to appoint or disqualify counsel or sanction counsel's disqualification through reduced or disgorged fees on an interim basis is an interlocutory, nonappealable order.

Conclusive Effect of Fee Award, and Indemnity, for Ethical Violations.

1. When a reorganization case fails, the Chapter 7 trustee and creditor

©2010 Susan M. Freeman. This outline is adapted from Chapter 172, Ethical Responsibilities, Norton Bankruptcy Law & Practice 3d (Thomson-West 2008).