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Keywords

motiontrustbankruptcycorporationcompliancedivorce
motiontrustbankruptcycorporationdivorce

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In re EWC, Inc., 138 B.R. 276, 22 Bankr.Ct.Dec. 1208

Facts

The debtor in this case is a large closely held family corporation involved in writing and selling consumer appliance warranties. Thomas S. Bala represented the debtor-in-possession while also representing its sole shareholder, Baird Trice, in a divorce action. Bala received payments for both representations and failed to disclose his dual representation in his application for employment, leading to the United States Trustee's motion to set aside his employment and seek disgorgement of fees.

The debtor in this case is a large closely held family corporation which was in the business of writing and selling consumer appliance warranties nationwide. For approximately two months pre-petition and one month post-petition, Bala represented Trice in a divorce action and concurrently represented the debtor.

Issue

Whether Thomas S. Bala's concurrent representation of the debtor-in-possession and its sole shareholder constituted a conflict of interest that warranted setting aside his employment and disgorgement of fees.

Whether Thomas S. Bala's concurrent representation of the debtor-in-possession and its sole shareholder constituted a conflict of interest that warranted setting aside his employment and disgorgement of fees.

Rule

Under 11 U.S.C. § 327(a), a professional cannot be employed if they hold or represent an interest adverse to the estate and must be disinterested. Strict compliance with disclosure requirements is necessary to maintain the integrity of the bankruptcy system.

Under 11 U.S.C. § 327(a), a professional cannot be employed if they hold or represent an interest adverse to the estate and must be disinterested.

Analysis

The court determined that Bala's concurrent representation of both the debtor and its sole shareholder created a conflict of interest, as he could not act solely in the estate's interest while also protecting Trice's interests. Bala's failure to disclose this dual representation violated the disclosure requirements, leading to the conclusion that his employment was void ab initio and that he was not entitled to compensation.

The court determined that Bala's concurrent representation of both the debtor and its sole shareholder created a conflict of interest, as he could not act solely in the estate's interest while also protecting Trice's interests.

Conclusion

The court granted the motion to set aside Bala's employment, denied his compensation, and ordered him to disgorge the fees received for his services.

The court granted the motion to set aside Bala's employment, denied his compensation, and ordered him to disgorge the fees received for his services.

Who won?

The United States Trustee prevailed in the case because the court found that Bala's dual representation constituted a conflict of interest, violating the requirements of the Bankruptcy Code.

The United States Trustee prevailed in the case because the court found that Bala's dual representation constituted a conflict of interest, violating the requirements of the Bankruptcy Code.

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