MEMORANDUM OPINION AND ORDER
Frank W. Volk, United States Bankruptcy Judge.
Pending is the Application of Debtor James F. Humphreys & Associates, L.C., ("the Firm") to Employ and Retain Bowles Rice LLP ("Bowles Rice") as Local Counsel for the Debtor-in-Possession Pursuant to 11 U.S.C. §§ 327(a) and 329, Effective as of the Petition Date, filed January 13, 2016 ("Application") (Doc. 3).
On February 10, 2016, the Court received from Tammy Litton, as Administrator of the Estate of Conard Litton, and putative intervenor Harvey Brightwell (together the "Objectors"), a combined motion to intervene and objection to the Application. On February 19, 2016, the Firm replied. On February 22, 2016, the Court received the Objectors' surreply.
The Objectors' primary concern is that their confidential client information, along with that of similarly situated individuals,
While the Objectors challenge is misplaced, their concerns are well-taken respecting the inviolability of their confidential information. The task for the Court is to fashion a result that preserves the debtor-in-possession's discretionary choice under section 327(a), while simultaneously protecting the interests of those non-clients who could possibly be prejudiced by that choice.
On January 13, 2016 (the "Petition Date"), the Firm voluntarily sought relief under Chapter 11 of the Bankruptcy Code. Pursuant to 11 U.S.C. §§ 327(a) and 329 of the Code, the Firm seeks to employ Bowles Rice as West Virginia local counsel to assist the law firm of Tucker Arensberg, P.C. ("Tucker Arensberg"), effective as of the Petition Date. The Firm desires Bowles Rice's assistance in view of its experience in bankruptcy and commercial matters and the qualifications of its members to perform the work required herein.
In general, it is expected that Bowles Rice would perform the following professional services:
The Firm offers its belief that Bowles Rice represents no other entity in connection with this case and is "disinterested," as defined in 11 U.S.C. § 101(14), and holds no interest adverse to the Firm's interests with respect to the matters for which Bowles Rice would be employed.
The Objectors oppose the Application. Tammy Litton is the administrator of Conard Litton's estate. The decedent was apparently afflicted with an asbestos-related condition and retained the Firm to file claims on his behalf. Ms. Litton asserts those claims were never filed. Harvey Brightwell is a listed creditor and a former joint client of the Firm and the Calwell practice. He has a pending—but essentially settled—claim against Monsanto in certain litigation pending in the Circuit Court of Putnam County. Mr. Brightwell asserts that the Firm holds a contingent claim against the gross proceeds of his case pursuant to a termination agreement which ended his joint representation by the Firm and the Calwell practice, the latter of which still represents his interests in the case.
The Objectors assert that Bowles Rice labors under an insurmountable conflict of interest that precludes the Application from being granted. It notes that Bowles Rice represents certain asbestos litigation defendants. Bowles Rice also represents Monsanto in the Circuit Court of Putnam County litigation. Specifically, the Objectors distill their respective disputations as follows:
(Objec. at 2-3). The Objectors' overriding concern appears to be that Bowles Rice may access confidential client information in the Firm's possession.
A. Governing Law
Title 11 U.S.C. § 327 covers the employment of attorneys and other professionals. It provides pertinently as follows:
11 U.S.C. § 327(a). The trustee, or a debtor in possession as here, is generally given a wide berth in selecting a lawyer under section 327(a). Kanter v. Robertson, 102 F.2d 92, 93 (4th Cir.1939); see In re Heck's, Inc., 83 B.R. 410, 416 (S.D.W.Va.1988) (Copenhaver, D.J.) ("Only in the rarest cases should the [client] be deprived of selecting his own counsel. . . .") (quoting Kanter, 102 F.2d at 93).
As the text indicates, however, section 327 cabins this discretion. For example, in subsection (a), one sees that proposed lawyers and professionals must (1) be disinterested and (2) not hold or represent interests adverse to the estate. In re Harold & Williams Dev't Co., 977 F.2d 906, 909 (4th Cir.1992). Sections 101(14)(A) and (B) define the term "disinterested" as
To aid practical application, an adverse interest is generally understood as being present when the proposed professional is compromised by
In re Empire State Conglomerates, Inc., 546 B.R. 306 (Bankr.S.D.N.Y.2016) (citing cases); see also In re Johnson, 312 B.R. 810, 819, n. 7 (E.D.Va.2004) (collecting cases); see also 9 Hon. William L. Norton Jr. & William L. Norton III, Norton Bankr. L. & Prac. 3d § 172:7 (3rd ed. elec. 2016). An important corollary, however, is that "[t]he test [for the presence of adverse interests] is not retrospective; courts only examine present interests when determining whether a party has an adverse interest." In re Project Orange Assocs., LLC, 431 B.R. 363, 370 (Bankr. S.D.N.Y.2010).
Reduced to its essence, the Objectors assert that Bowles Rice is not disinterested inasmuch as (1) it represents clients against whom suit was brought by the Firm on the Objectors' and others behalves, and (2) it harbors an interest in accessing confidential information redounding to those plaintiffs' litigation detriment. The Objectors concerns about the disinterestedness of Bowles Rice, however, are all contingent upon future events that seem—at best—unlikely to ripen into reality. For example, the Objectors fear that "Bowles Rice [which represents defendants in asbestos litigation] may come into information from the . . . [Firm] regarding [the Litton and related matters'] trial strategy, settlement strategy, case value, and other information which could be used against . . . [the Firm's] own clients, former clients with present claims, and future clients." (Objec. at 2 (emphasis added)). They additionally theorize a veritable parade of horrors "in the event a dispute arises whether the settlement [in the Brightwell and related matters is] . . . satisfied." (Id. at 3 (emphasis added)). They add as to the Brightwell matter that, "Even though the . . . [the Firm] is no longer actively representing the objector, he [sic] has intimate knowledge of many aspects of the case and an interest in the finalization of the settlement which may be contrary to the interests of Monsanto." (Id. (emphasis added)). The Objectors' concerns are speculative at this point.
While it is asserted that Bowles Rice has an interest materially adverse to the estate, there appears little to no likelihood that it has (1) an economic interest tending to lessen the value of the estate, (2) any interest that would cause a dispute in which the estate is a rival claimant, or (3) a predisposition giving rise to a bias against the estate. While courts have often been troubled by either actual or potential conflicts of interest in this area, one court has noted as follows:
In re Granite Partners, L.P., 219 B.R. 22, 33 (Bankr.S.D.N.Y.1998). The Court discerns no reasonable basis, at this point, to conclude that Bowles Rice has, or will develop, an interest materially adverse to the estate.
In sum, it is fair to say that the governing statute and rules do not explicitly contemplate the unusual situation here involved. Although the Objectors' legal arguments do not give rise to Bowles Rice's disqualification under the specific provisions relied upon, the Objectors' confidentiality concerns are nevertheless substantial. It is thus the Firm's primary and nontransferable obligation to guard the secrets of its present and former clients. The Firm, with the aid of its counsel, must avoid the possibility that Bowles Rice could inadvertently come into contact with the type of confidential information identified by the Objectors during, for example, the defense of an adversary proceeding involving one or more of the vast sea of creditors on the matrix.
To avoid that prospect from reaching fruition, the Court would expect the Firm, and Mr. Humphreys personally, to plan appropriately and take the steps necessary to discharge the obligations imposed upon them by Rule 1.9(c) and Rule 1.6(a) and (c), cognizant of any applicable safe harbors found in subdivision (b). The development of that plan and its necessary steps should be undertaken with the assistance of both Tucker Arensberg and Bowles Rice. With that proviso, it is
The Clerk is directed to serve a copy of this written opinion and order on counsel of record for the Firm and the Objectors, along with those entities on the creditor matrix.