IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE:

TAMMY L. STRAUGHN : Case No. 09-26613-TPA

Debtor : Chapter 11

:

TAMMY L. STRAUGHN, :

Movant : Related to Document No. 12

:

v. :

:

NO RESPONDENT :

:

------------------------------------------------- : 

IN RE: :

:

JT TRUCKING, INC. : Case No. 09-24369

Debtor : Chapter 11

:

JT TRUCKING, INC., :

Movant : Related to Document No. 55

:

v. :

:

NO RESPONDENT :

Appearances: Donald R. Calaiaro, Esq., for the Debtors

Joseph M. Fornari, Jr., Esq. for the United States Trustee

MEMORANDUM OPINION

Both Debtors in these related cases have filed similar Motions to Employ Counsel

(“Motions to Employ”) that seek to employ Donald R. Calaiaro as their attorney (“Proposed

Counsel”). The individual Debtor, Tammy L. Straughn (“Straughn”) is the majority shareholder and

president of the corporate Debtor, J.T. Trucking, Inc. (“J.T.”) and, as discussed below, there are

FILED

2010 MAY 5 A 11:43

CLERK

U.S. BANKRUPTCY

COURT - PGH

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certain other financial ties that exist between the Debtors. The United States Trustee (“UST”) filed

Responses in both cases opposing the dual retention of Proposed Counsel by both Debtors on the

grounds of actual and/or potential conflict of interests. An evidentiary hearing was held on March 1

1, 2010, at which time Straughn testified. For the reasons that follow, the Court finds that Proposed

Counsel may not represent both Debtors.

Bankruptcy Cases

On May 8, 2009, about one month prior to the filing of the current case, the Court

dismissed a prior Chapter 11 case filed by J.T. at Case No. 07-22204 due to its failure to make the

payments required under a confirmed Plan of Reorganization and the Debtor otherwise being unable

to satisfy the requirements for obtaining a Final Decree. Proposed Counsel represented J.T. in the

prior case. The voluntary petition in the present case was filed on June 10, 2009.

On September 9, 2009, Straughn filed her voluntary Petition under Chapter 11 of the

Bankruptcy Code. Like J.T., Straughn had previously filed a bankruptcy at Case No. 08-28090. Her

prior case was filed on December 3, 2008, under Chapter 7 of the Bankruptcy Code by an attorney

other than Proposed Counsel. The Debtor failed to appear at the first scheduled §341 Meeting which

was then rescheduled. Proposed Counsel entered an appearance in the case just prior to the

rescheduled meeting. The §341 Meeting was held on April 1, 2008, and was adjourned to April 29,

1 The Court’s jurisdiction to hear and determine the Motions to Employ arises under 28 U.S.C. §§ 1334

and 157. This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(A). This Opinion constitutes the Court’s findings of

fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052 which is made applicable to contested matters by

Fed.R.Bankr.P. 9014.

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2008 as “[n]ewly retained counsel requires additional time to make required amendments.” One day

prior to the rescheduled §341 Meeting, the Debtor, through Proposed Counsel, filed a motion to

dismiss the case, which was granted by Order dated May 29, 2009. 

Motions to Employ Counsel

On September 22, 2009, Proposed Counsel’s Motion to Employ was filed in Straughn

which disclosed Proposed Counsel’s simultaneous representations of J.T. (“Straughn Motion to

Employ”). On October 22, 2009, the first hearing to consider the Straughn Motion to Employ was

held and by Order dated October 29, 2009, the Court expressed its concern in regard to Proposed

Counsel’s representation of both of the related debtors, Straughn and J.T. Straughn was directed to

file an Affidavit on or before November 12, 2009 addressing seven specific issues which were set

forth in the Order. The UST was also directed to file a response and state her position regarding

the dual representation. 

Rather than Straughn filing an Affidavit as directed, Proposed Counsel filed a

Declaration Under Bankruptcy Rule 2014(a) in Support of Application to Employ Counsel 

(“Declaration”). The Declaration began by setting forth certain factual details regarding the

relationship between J.T. and Straughn, and ended with Proposed Counsel’s conclusion that no

actual conflict of interest exists in his representation of both Debtors. Proposed Counsel claimed

that under “the unique circumstances present here” he should be permitted to represent both Debtors

until such time as a conflict actually arose.

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Thereafter, the UST timely filed her Response. On November 23, 2009, a Corrected

Response was filed by the UST (“Response”). In her Response, the UST alleged that Proposed

Counsel and Straughn’s Declaration was non-responsive to the Court’s Order in that it failed to

provide sufficient information to enable a determination of whether actual or potential conflicts of

interest existed that would disqualify Proposed Counsel. For these and other reasons, the UST

requested that the Motion to Employ be denied. 

On December 1, 2009, similar to the Straughn Motion to Employ, the Motion to

Employ currently under review in the J.T. case was filed by the Debtor (“J.T. Motion to Employ”). 2

 On January 4, 2010, the UST filed her Response to the J.T. Motion to Employ and, for similar

reasons, requested that it be denied. 

Following a continuance at the request of Proposed Counsel, an evidentiary hearing

and argument were rescheduled for March 1, 2010, regarding both Motions to Employ. On the eve

of the evidentiary hearing, Proposed Counsel filed a Supplemental Declaration Under Bankruptcy

Rule 2014(a) In Support of Application to Employ Counsel in Straughn (“Supplemental

Declaration.”) In the Supplemental Declaration, Proposed Counsel attempted to respond to the

seven specifically enumerated questions raised by the Court in its October 27, 2009 Order and

directed to the heart of the conflict issue. Proposed Counsel acknowledged several areas of potential

conflict but maintained that since no actual conflicts existed, “chosen counsel” should be permitted

to represent both Debtors until an actual conflict arose.

As noted, the present case was originally filed by J.T. on June 10, 2009. No accompanying Motion 2

to Employ was filed until December 1, 2009.

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FACTS

The facts necessary for a determination of the Motions to Employ can be gleaned from

the petitions and other filings, and the testimony of Straughn at the evidentiary hearing. The 3

relevant facts appear to be undisputed and include the following:

! Straughn is an 80% shareholder of J.T. and serves as its

President and Secretary.

! Straughn owns 800 shares of J.T. stock which she values at

$1.

! Straughn is also a creditor of J.T., showing an account

receivable due from J.T. in the amount of $7,700.

! Straughn is a codebtor or guarantor on the majority of J.T.’s

obligations.

! The Straughn and J.T. petitions reflect that both share a

number of unsecured creditors (Cascade Express, Automated

Fueling, Keystone Spring and One-Call Rentals) and secured

creditors (First National Bank (“FNB”) and Triangle

Gasoline). 

! There are 2 , 3 , and 4 mortgages against Straughn’s nd rd th

residence for obligations incurred by J.T., with FNB holding

the 2 and 3 , and Triangle Gasoline the 4th. nd rd

! Straughn has been assessed a civil penalty by the IRS and is

personally liable for the trust fund portion of J.T.’s tax

obligations which include a significant priority claim.

 The court may take judicial notice of its docket. Fed. R. Evid. 201, incorporated in these proceedings 3

by Fed.R.Bankr.P. 9017. See Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1200 n. 3 (3d Cir.

1991); Levine v. Egidi, 1993 WL 69146 at *2 (N.D. Ill. March 8, 1993); In re Paolino, 1991 WL 284107 at *12 n.

19 (Bankr. E.D. Pa. Jan. 11, 1991); see generally In re Indian Palms Assoc., Ltd., 61 F.3d 197 (3d Cir. 1995). 

While a court may not take judicial notice sua sponte of facts contained in the debtor’s file that are disputed, e.g. In

re Aughenbaugh, 125 F.2d 887 (3d Cir. 1942), it may take judicial notice of adjudicative facts “not subject to

reasonable dispute ...[and] so long as it is not unfair to a party to do so and does not undermine the trial court’s factfinding authority.” In re Indian Palms Assoc., 61 F.3d at 205 citing Fed. R. Evid. 201(f) advisory committee note

(1972 proposed rules)); See also: In re Berg, 356 B.R. 378 n. 1 (Bankr E.D. Pa. 2006).

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J.T. had previously operated as a Limited Liability Partnership and it applied for a

loan through the Small Business Administration (“SBA”). At the request of the SBA and in order

to obtain the SBA loan, J.T. was incorporated. The loans that are listed as obligations to FNB in the

Straughn and the J.T. cases, respectively, represent the SBA loans.

From the date of J.T.’s incorporation, Straughn has been an 80% shareholder and has

served as its President and Secretary. Her status remained unchanged as of the filing of the present

bankruptcy cases. Straughn prepared a business plan for J.T. in 2007. After J.T.’s first bankruptcy

filing, despite maintaining her official titles, Straughn’s involvement in J.T. was reduced to

bookkeeping and the preparation of reports. Subsequent to the present bankruptcy filings, John

Toomey has managed J.T. on a day-to-day basis. Toomey is a 15% shareholder of J.T. and

Straughn’s “significant other.” Under the proposed Plan in the J.T. case, Straughn is to surrender

all of her stock in the corporation and relinquish her positions as corporate officer. Straughn made

the decision to surrender the stock and determined that $1 was an appropriate value of the stock

based on the value that she listed on the documents she submitted to the PA Department of State in

connection with the incorporation. 

At no time during J.T.’s existence has Straughn ever drawn a salary or other

compensation from it. In the two years prior to the filing of the present case by J.T., no assets have

been transferred and no payments have been made to Straughn. During that time, no monies or

other assets have been transferred to J.T. from Straughn. 

The cause for Straughn’s personal bankruptcy filing was directly related to the debt

incurred by J.T. for which she is currently liable. Straughn is liable as joint obligor or guarantor on

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over 50% of J.T.’s liabilities. The IRS has even assessed her a civil penalty for taxes that J.T. has

failed to pay. According to the Plan it proposed, J.T. will pay, in full, the tax obligations on which

Straughn is a co-debtor. 

Straughn asserts that there is no equity in her residence. Straughn values her

residence at $128,000 and identifies Chase Mortgage, which is alleged to be owed $139,000, as 4

holder of the 1 Mortgage against her residence. As a result, she intends to “strip off” and reduce the st

2 , 3 , and 4 mortgages against the property to unsecured debt for the FNB and Triangle Gasoline nd rd th

obligations incurred by J.T.

There is no dispute that Straughn is a creditor of J.T. and its bankruptcy estate. J.T.’s

obligation to Straughn arises from a transaction involving a trailer which Straughn purchased and 

then leased to J.T. for use in the business. J.T. failed to make the lease payments and is obligated

to Straughn in the amount of $7,700. Straughn believes that the obligation to her is uncollectible and

that payment to her, in any amount, is not expected. 5

Straughn agreed to pay Proposed Counsel a $6,500 retainer for her case. Of that

amount, Straughn has paid $3,000, but the balance remains unpaid pending the approval of Proposed

Counsel’s Motion to Employ. At the March 1 evidentiary hearing, Straughn made clear that she st

agreed to waive any potential conflicts of interest. She also claimed to be unaware of any actual

The Court notes that in the prior case, Case No. 08-28090, Straughn indicated on Schedule “A” 4

that the value of her residence was $175,000.

 There was initially some dispute as to whether the trailer should be part of the Straughn bankruptcy 5

estate or the J.T. bankruptcy estate. However, the trailer has been surrendered to Commerce Bank, the secured

creditor which financed its purchase, so that issue is moot. 

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conflicts of interest between and among herself, J.T. and Proposed Counsel. Straughn claimed that 6

Toomey, on behalf of J.T., had also agreed to waive any conflicts but other than her statement,

nothing is documented on the record regarding Toomey’s intent.

Straughn testified that she received “significant” income from other employment and

that if the Plan is confirmed she acknowledged that she is obligated to pay her disposable income

for a minimum period of five years to her unsecured creditors. She testified that her Chapter 11 case

is not in anyway dependent upon J.T. obtaining confirmation, and likewise, J.T. is not dependent on

Straughn.

DISCUSSION

The Bankruptcy Code allows the trustee of a bankruptcy estate to employ attorneys

to assist her in her duties. 11 U.S.C. § 327(a). The power of a debtor-in-possession to employ

professionals is the same as a trustee. 11 U.S.C. § 1107(a); United States Trustee v. Price

Waterhouse, 19 F.3d 138, 141 (3d Cir. 1994). The professional to be retained by the debtor in a

bankruptcy case must not hold, or represent, an interest adverse to the estate, and, must be

disinterested. In re Marvel Entm’t Group, Inc., 140 F.3d 463, 475 (3d Cir. 1998); 11 U.S.C. §

327(a). 

Section 327(a) of the Bankruptcy Code provides:

 “[T]he trustee, with the Court’s approval, may employ one or more

attorneys....that do not hold or represent an interest adverse to the estate,

Straughn testified that she was able to render such an opinion in large part due to her 2 years of 6

study in law school.

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and that are disinterested persons, to represent or assist the trustee in

carrying out the trustee’s duties under this title.”

11 U.S.C. § 327(a).

A disinterested person is one that “does not have an interest materially adverse to the interest of the

estate....by reason of any direct or indirect relationship to, connection with, or interest in the debtor,

or for any other reason.” 11 U.S.C. § 101(14)(c).

Recently, the Honorable Jeffery A. Deller of this Court, identified the operative

standards to follow when evaluating conflict issues such as those presented in these cases. Judge

Deller recognized that as a general proposition, “the dual representation of a closely held corporation

and its principal has been disfavored by various bankruptcy courts.” In re Cunzolo, 423 B.R. 735,

737 (Bankr. W.D. Pa. 2010) citing In re BH & P, Inc., 949 F.2d 1300 (3d Cir. 1991); In re Bohack

Corp., 607 F.2d 258 (2d Cir. 1979); In re Frascella Enters., Inc., 2006 WL 1530256 (Bankr. E.D.

Pa. Apr. 12, 2006). Furthermore, an application to employ counsel requires careful and thoughtful

consideration since the denial of such an application deprives the debtor of her choice of counsel,

a point made clear by Proposed Counsel at the March 1 hearing and in his filings. Cunzolo, 423 st

B.R. at 740; In re Raymond Prof’l Group, Inc., 421 B.R. 891, 901 (Bankr. N. D. Ill. 2009). 

Incorrectly granting an application without the appropriate review, however, may allow a

professional to represent a conflicting interest resulting in prejudice to the creditors of the estate

outweighing any choice of counsel considerations of the Debtor. Id.

In performing the “appropriate” review, some courts have applied a per se prohibition 

against the concurrent representation of both a major shareholder and the related corporate estate. 

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In re Wynne Residential Asset Mgmt., L.L.C., 2009 WL 5169371 at *4 (Bankr. W.D. N.C. Dec. 18,

2009); In re Innomed Labs, L.L.C., 2008 WL 276490 at *7 (S.D. N.Y. 2008) citing In re Kendavis

Indus. Int’l Inc., 91 B.R. 742, 754 (Bankr. N.D. Tex. 1988). Other courts have adopted a rule that

it is presumptively improper to appoint a single professional in related cases where there exists a

potential conflict of interest. In re Parkway Calabasas, Ltd., 89 B.R. 832, 835-37 (Bankr. C.D. Cal.

1982); In re BH & P, Inc., 103 B.R. 556, 570-72 (Bankr. D.N.J. 1989), remanded on other grounds,

119 B.R. 35 (D.N.J. 1990), aff’d, 949 F.2d 1300 (3d Cir. 1991).

The Third Circuit has rejected the “presumptive rule” and in its stead adopted a “casespecific” conflicts-of-interest analysis that is largely “committed” to the sound discretion of the

bankruptcy court. In re BH & P, Inc., 949 F.2d 1300, 1310-14 (3d Cir. 1991). 

In BH & P, the court affirmed the bankruptcy court’s articulation of the applicable

standard governing conflict of interest issues as they relate to professionals in the bankruptcy

context. In that case, the bankruptcy court recognized that disapproval of the professional’s

employment is mandatory where an actual conflict exists. When a potential conflict arises, the court

is required to exercise its discretion in approving or disapproving employment with a presumption

against allowing the employment unless certain exceptions apply. In BH & P, the Third Circuit cited

with approval the bankruptcy court’s finding:

“[t]he court should generally disapprove employment of a professional 

with a potential conflict, with certain possible exceptions. First of all, ...

there may occasionally be large cases where every competent professional

in a particular field is already employed by a creditor or a party in

interest....

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The other exception is where the possibility that the potential conflict will

become actual is remote, and the reasons for employing the professional in

question are particularly compelling.

This court will not attempt here to define the parameters of the exception,

which necessarily will depend upon the facts of a particular case. I will,

however, note that even in such situations, employment of a professional

with a potential conflict is disfavored.

BH &P, 949 F.2d at 1316 quoting BH & P, 103 B.R. at 564. 

“The term ‘actual conflict of interest’ is not defined in the Bankruptcy Code but has

been given meaning largely through a case-by-case evaluation of particular situations arising in the

bankruptcy context.” BH & P, Inc., 949 F.2d at 1315. Therefore, while exercising its discretion in

determining the existence of an actual conflict, the bankruptcy court is required to evaluate each case

on its facts, taking all circumstances into account. This approach was reaffirmed in In re Marvel

Entm’t Group, Inc., where the court recognized the application of a per se rule of disqualification

when confronted with an actual conflict:

We previously interpreted the standards applicable to employment of

trustee’s counsel under §§ 327(a) and 101(14)(E) in BH & P, 949 F.2d

1300. Insofar as both parties have somewhat misread BH & P, and urge

upon us such conflicting interpretations of it, we have studied our previous

decision in great detail and today expressly reiterate its holding: (1) Section

327(a), as well as § 327(c), imposes a per se disqualification as trustee’s

counsel on any attorney who has an actual conflict of interest; (2) the

district court may within its discretion-pursuant to § 327(a) and consistent

with § 327(c)-disqualify an attorney who has a potential conflict of interest

and (3) the district court may not disqualify an attorney on the appearance

of conflict alone. 

Id. 140 F.3d at 476 (emphasis added). See also In re Congoleum Corp., 426 F.3d 675, 692 (3d Cir.

2005) (reiterating BHP and Marvel holdings).

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The record in the subject cases readily gives rise to a host of scenarios to review for

purposes of determining the existence of either actual or potential conflicts of interest. Perhaps most

telling is that Straughn is a creditor of J.T. “Where one estate is indebted to the other, there exist two

groups of creditors which have conflicting claims and payment for one group is necessarily at the

expense of the other.” In re Star Broad., 81 B.R. 835, 841 (Bankr. D. N.J. 1988) quoting In re

Huffman, 53 B.R. 564, 565-66 (Bankr. W.D. Ark. 1985). If Proposed Counsel were allowed to

simultaneously represent both estates, he would have to function as a proponent of the Plan in the

J.T. case and simultaneously pass on the merits of the Plan, and the concomitant repayment

possibilities, on behalf of the estate in the Straughn case. “[I]f the same attorney represents both

estates, he is faced with the dilemma of advising his clients to choose between conflicting duties

which are as president of the corporation and as a fiduciary for the individual estate.” Star, supra;

see also In re Jeep Eagle 17, Inc., 2009 WL 2132428 at 44 (Bankr. D. N.J., July 13, 2009).

Straughn testified that she does not intend to collect the receivable due her from J.T.

and will waive any claims that she has against the corporation. That, however, does not resolve the

actual conflict. Her agreement to waive the claim is a detriment to her personal creditors. If

Straughn waives her claim, the creditors of the J.T. estate would benefit while the creditors of her

individual estate would suffer in the reverse degree. Proposed Counsel would be faced with the

dilemma of advising Straughn to choose between conflicting duties which exist in her capacity as

president of the corporation in the corporate bankruptcy and as a fiduciary for the individual estate. 

Id. As Judge Deller recognized in Cunzolo: 

An attorney for the debtor-in-possession has a fiduciary duty “not only to

the debtor, but has a fiduciary obligation to act in the best interest of the

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entire estate, including creditors.” ... In this regard, the debtor-inpossession and its counsel have a duty to maximize value for the estate as

a whole.... This includes insuring the protection of creditors rights.... 

Cunzolo, 423 B.R. at 739 n.5 (citations omitted).

Therefore, the Court finds in this case that because one estate is indebted to the other,

there is an actual conflict of interest which prohibits the dual representation of both Debtors by

Proposed Counsel.

This conflict situation is exacerbated since Straughn is also the majority shareholder

of J.T. and a co-obligor and guarantor for a large percentage of J.T.’s debt, including unpaid priority

tax obligations. The resulting conflict for an attorney representing both a corporation and its

majority shareholder, who controls the corporation, is the risk that the shareholder in control will

instruct counsel in ways that favor her interest as guarantor at the expense of her fiduciary duty to

the corporation. In re Plaza Hotel Corp., 111 B.R. 882, 890 (Bankr. E.D. Cal. 1990) (interests of 7

owner guarantors and interests of debtor corporation are not identical and there is a persistent risk

for an attorney who represents both a corporation and the individuals who control it that the attorney

will be instructed to act in ways that favor their interests qua guarantors at the expense of their

interests qua owners).

As to the inherent conflicts an attorney can face in simultaneously representing a corporation and 7

its principal/majority shareholder in her individual capacity, see, for example, Fellheimer, Eichen & Braverman,

P.C. v. Charter Techs., Inc., 57 F.3d 1215, 1229 (3d Cir. 1995) (once attorney abandoned fiduciary obligations as

counsel to debtor corporation and undertook representation of individual shareholder he became hostile to debtor

corporation and its creditors); In re Angelika Films 57 , Inc., 246 B.R. 176, 180 (S.D N.Y. 2000) (commenting on th

the difficulties inherent in a situation where the principal of a debtor and the debtor are represented by the same

counsel).

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Beyond the actual conflicts present here, sufficient additional “potential” conflicts

exist that would indicate disqualification is warranted. Straughn values her residence at $128,000,

an amount which is less than the $139,000 balance on her first mortgage. In her prior bankruptcy,

Straughn valued her residence at $175,000. By reducing the value to an amount less than is owed

on the first mortgage, Straughn intends to “strip off” the 2 , 3 , and 4 mortgages, eliminating nd rd th

Straughn’s secured guaranty obligation to creditors of J.T. Since Straughn is a guarantor and

coobligor on J.T.’s obligations, advising the individual debtor whether or not to take this course

creates a potential conflict for Proposed Counsel who has a fiduciary duty to the creditors of both

bankruptcy estates. In re Plaza Hotel Corp., 111 B.R. at 890. 

Similarly, that Straughn intends to surrender her stock to J.T. without compensation

creates another situation which may ultimately lead to an actual conflict, not merely a potential one. 

Straughn claims that her stock in J.T. has no value because she listed the stock with a par value of

$1 on J.T.’s incorporation papers. The stated par value has nothing to do with actual value. It may

be correct that the stock is without value, or it may be that if and when J.T. reorganizes, the stock

will have value. Straughn will need legal advice from Proposed Counsel on this subject and, like

the issue concerning the value of her residence, the determination will have an effect on the creditors

of both bankruptcy estates the result of which may impact upon Proposed Counsel’s fiduciary duty

to the creditors of both estates.

The Court recognizes that Debtor’s choice of counsel is entitled to significant

deference. In re Shore, 2004 WL 2357992 at *4 (Bankr. D. Kan. 2004) (and cases cited therein). 

However, that choice of counsel must be balanced against the mandate in this Circuit that dual

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representation, under facts such as those presented here, is disfavored. This is not a case where every

competent professional in the bankruptcy field is already employed by a creditor or a party in

interest. Nor is it a case where the likelihood that potential conflicts will eventually become actual,

is remote. In balancing Debtor’s choice of counsel and judicial efficiency against the need to

preserve the public’s confidence in the bankruptcy system, the Court cannot ignore the conflicts that

present themselves under these facts. 

Based on the numerous, apparent conflicts in these cases, even if the Court were to

give the Debtors and Proposed Counsel the benefit of every doubt, and find that all of the identified

conflicts rose only to the level of potential conflicts rather than actual, the cumulative effect of the

“potential” conflicts of interest are of such significance and scope, at the very least, the individual

debtor, Straughn, and the corporate debtor, J.T., must each retain separate counsel. Here, the

efficiency and economy that may favor multiple representation must yield to the competing concerns

affecting fairness to all parties involved and in protecting the integrity of the bankruptcy process. 8

As is apparent from the prior discussion, in arriving at this decision, the Court has

also considered developments having taken place in the subject cases following their respective

filings. This includes that as part of J.T.’s proposed Plan, Straughn is to surrender her stock and

relinquish her corporate office, and, that Straughn does not intend to collect the receivable due her

estate from J.T. However, the events that are contemplated to occur upon confirmation of a plan are

speculative at best given that confirmation of a plan is not a certainty. In re Jeep Eagle 17, Inc.,

Straughn’s failure to file an Affidavit to address the Court’s specific concerns as directed by the 8

October 27, 2009 Order constitutes a basis for disqualification in and of itself. In re Cunzolo, 423 B.R. at 742.

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2009 WL 2132428 at *4 (Bankr. D. N.J. July 13, 2009) citing Star Broad., 81 B.R. at 840. 

Regardless of the possibility of certain events coming to fruition, occurrence of those events does

not alleviate the fact that Proposed Counsel was not disinterested and was subject to an adverse

interest from the outset of the cases. In re Cunzolo, 423 B.R. at 740.

That both Straughn and J.T. have each agreed to waive any conflict has similarly been

given due consideration by the Court. Consent by a Chapter 11 debtor to waive conflicts is

insufficient to cure any actual or potential conflicts because the ultimate parties in interest are the

bankruptcy estate’s creditors. In re Jeep Eagle 17, 2009 WL 2132428 at *5. 

The Court recognizes that Proposed Counsel has made significant progress in these

cases. “Accomplishments, however, cannot wash a professional clean of any adverse interest or

make an otherwise interested person disinterested.” In re 7677 East Berry Ave. Assocs., L.P., 419

B.R. 833, 840 (Bankr. D. Colo. 2009). “[T]hese subsequent developments do not alleviate the fact

that when this case was commenced ... counsel was not a disinterested person under the Bankruptcy

Code.” Cunzolo at 740. “[P]roposed counsel assumed the risk from day one that the retention

application could be denied.” Id. 

As a practical matter, given the nature of the relationship between a sole shareholder

and the related corporation, it is difficult to imagine a situation where both parties in separate

Chapter 11 cases could be represented by a single attorney. In most cases of this type, similar to the 9

That in past situations of this type, such dual representation may have been permitted to occur in 9

this Court without strict scrutiny, is not a license for the future. By Opinions such as this one, and Cunzolo, the Bar

of this Court should be put on notice that, going forward, the Court will be more vigilant concerning the review of

dual representation issues. 

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present situation, conflicts abound over issues such as the amount of the shareholder’s salary, the

appropriate amount of rental payments between the parties, joint liabilities or liabilities for which

the shareholder serves as coobligor or guarantor, a debtor-creditor relationship between the parties,

or situations in which transfers between the parties have occurred prior to the filing date. These

types of relationships require debtor’s counsel to analyze and ponder the effect of these actual or

potential conflict situations in the bankruptcy context before the case is even filed. Where

circumstances are presented that interfere with counsel’s exercise of independent judgment on behalf

of client and creditors, the wise choice is not to assume a dual representation relationship. 

CONCLUSION

In deciding this matter, the Court is sensitive to the concept that the extent of the

potential conflict when balanced against the right to choose counsel and the cost of paying for

independent counsel, in some cases, may militate against separate representation. Cunzollo, 423

B.R. 740. But that is a consideration best reserved as an ending point in the review process. 

Resolution of the dual representation issue begins with an examination of the extent and nature of

existing conflicts, actual or potential. Where the conflict issue outweighs the choice and cost issues 

– which will always be the case where there is an actual conflict – separate representation is required. 

Under these facts, clearly the exercise of Proposed Counsel’s independent judgement as to matters

affecting each estate is necessarily compromised. Under these facts, Proposed Counsel, is not a

disinterested person but holds an interest adverse to the bankruptcy estate. As such, the Court must

sustain the objections of the UST and at this time exercise its discretion by denying each Motion to

Employ. Cunzolo at 739-40. 

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Proposed Counsel, in consultation with the Debtors, will be given 20 days from the

date of the Order issued pursuant to this Memorandum Opinion to determine whether he will

represent Straughn or represent J.T. The Court will then be in a position to entertain an amended

motion to employ, nunc pro tunc. The other debtor-in-possession will thereafter immediately retain

substitute counsel. See In re Jeep Eagle 17, 2009 WL 2132428 at *6; In re Star Broad., Inc., 81

B.R. at 844, citing, Hoffman, 53 B.R. at 566. All proceedings in both cases are stayed pending 10

resolution of the representation issue.

An appropriate Order will be entered

Dated: May 5, 2010 _____________________________________

Thomas P. Agresti, Chief Judge

United States Bankruptcy Court

Case Administrator to serve:

Donald R. Calaiaro, Esq.

Joseph M. Fornari, Esq.

It would appear at this stage of the case, under a strict application of the applicable standard, 10

Proposed Counsel should be prohibited from representing both Debtors since, if an actual conflict existed from the

beginning of the representation, that conflict seemingly would create irreconcilable differences with Counsel’s

judgment for each bankruptcy estate. However, under the facts of these cases the Court will adopt the same measure

of relief afforded in In re Jeep, supra, and requested by the UST, that is, allow Proposed Counsel to represent one of

the Debtors in the pending cases. This approach may not be available in future cases where the dual representation

issue arises.

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_____________________________________

Thomas P. Agresti, Chief Judge

United States Bankruptcy Court

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