In the U.S. and in most developed countries, adherence to ethical standards is the accepted business practice. This is not the case in many developing markets, however. Consequently, ethical dilemmas can arise between conflicting standards. It is therefore important to educate clients and their stakeholders about the long-term financial benefits of avoiding ethical pitfalls in their international business dealings.
At times, it is necessary to hire special or co-counsel in a bankruptcy case when the case involves matters that are beyond the expertise of debtor’s counsel, such as tax law or personal-injury litigation. These employments can run afoul of the Bankruptcy Code if the applications to hire and payment of attorney fees are not handled in an appropriate manner.
Rule 1.1 of the Model Rules of Professional Conduct requires that all lawyers provide “competent representation to a client.” In August 2012, the ABA added new language to Model Rule 1.1, comment 8:
To maintain the requisite knowledge and skill, a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology, engage in continuing study and education and comply with all continuing legal education requirements to which the lawyer is subject. (new language in italics).
Two recent opinions — one from the Lehman Brothers case and the other from the Spansion case — provide new guidance on whether individual committee members and unofficial committees may request attorneys’ fees on the basis of substantial contribution.
Section 330 of the Bankruptcy Code permits a court to authorize reasonable compensation for actual and necessary services. Courts within the Fifth Circuit are bound by In re Pro-Snax Distributors Inc., which held that services are compensable under § 330, but only if the applicant proves that the services resulted in a benefit to the bankruptcy estate.[1] A recent decision by a panel of the Fifth Circuit demonstrates that Pro-Snax continues to be binding precedent, but the panel took the extraordinary step of unanimously recommending that the Fifth Circuit revisit Pro-Snax en banc.[2]
Editor's Note: Maria Michelle Nisce is a 2014 J.D./M.B.A. candidate at the University of Nevada at Las Vegas William S. Boyd School of Law and Lee Business School.
In an issue of first impression in the MF Global Inc. liquidation proceedings under the Securities Investor Protection Act of 1970 (SIPA), Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York held that payments to non-attorney professionals hired by a SIPA trustee need only be approved by the Securities Investor Protection Corp.
On Feb. 11, 2014, the U.S. Bankruptcy Court for the Middle District of Alabama awarded a debtor actual damages, punitive damages (five times the amount of actual damages) and attorneys’ fees for a creditor’s willful violation of the automatic stay.[1] As directed, the debtor filed his application for attorneys’ fees, and the offending creditor objected to the application. The court analyzed the propriety of an attorneys’ fee award where there was a willful violation of the automatic stay.
In the recently decided case of In re Residential Capital (ResCap), Judge Glenn approved a $2 million success fee to the court-approved chief restructuring officer (CRO or Kruger).[1] In doing so, the court overruled the sole objection, which had been filed by the U.S. Trustee, and found that the debtors appropriately exercised their business judgment and met the reasonableness standard for use of estate assets found in §§ 330 and 363.
In Ruffini v. Norton Law Group PLLC,[1] the bankruptcy court permitted the debtors’ estate to recover pre-petition legal fees under § 548 of the Bankruptcy Code and §§ 271-273 of New York Debtor Creditor Law as fraudulent conveyances. In its decision, the court was careful to state that there is no bright-line test for determining whether pre-petition legal fees are avoidable as constructively fraudulent transfers in bankruptcy.
