Source: http://www.tmajcr.org/journalofcorporaterenewal/20121112?pg=11
Timestamp: 2020-02-21 05:16:41
Document Index: 135715478

Matched Legal Cases: ['§ 332', '§363', '§332', '§105', '§333', '§ 332', '§330', '§1104', '§105', '§332', '§330', '§332', '§330', '§330', '§330', '§105']

SOFT ASSET COMPANIES
The Bankruptcy Code authorizes U.S. Bankruptcy Courts to direct he U.S. Trustee to appoint either a consumer privacy ombudsman (CPO) or a patient care ombudsman (PCO) in certain circumstances, pursuant to Bankruptcy Code §§ 332 and 333, respectively.
The crucial fact for ombudsmen, like examiners, is that they must seek authority from the Bankruptcy Court before retaining attorneys or other professionals.
When a debtor seeks to sell personally
identifiable information in a manner
inconsistent with its prepetition
privacy policy, §363(b)( 1)(B) of the code
nevertheless permits the Bankruptcy
Court to authorize the sale after
appointing a CPO and conducting a
hearing. Under Bankruptcy Code §332(b),
the CPO is appointed “to appear and
to be heard at such hearing and [to]
provide the court information to assist
the court in the consideration of the
facts, circumstances and conditions
of the proposed sale or lease of
personally identifiable information.…”
they retain. See In re Renaissance
Hospital-Grand Prairie, Inc., 399 B.R.
442, 445-46 (Bankr. N.D. Tex. 2008).
The court then held, however, that when appropriate under the facts of a particular case, Bankruptcy Courts, pursuant to their equitable power under §105 of the Bankruptcy Code, may authorize a PCO to retain counsel and did so in Synergy. Id. at 319-20.
When a Chapter 7, 9, or 11 debtor is a health care business, Bankruptcy Code §333(a) provides that a PCO shall be appointed within 30 days after the petition date “to monitor the quality of patient care and to represent the interest of the patients of the health care business” unless the court finds that a PCO is not needed. Left unresolved by Bankruptcy Code §§ 332 and 333 is whether ombudsmen have authority to retain attorneys or other professionals to assist them in performing their duties.
An ombudsman’s ability to retain professionals recently came to the forefront in the Chapter 11 cases of In re Borders Group, Inc., et al., Case No. 11-
10614 (Bankr. S.D.N. Y.), in which a CPO was appointed in connection with the sale of certain of the debtors’ customer data. The CPO sought compensation totaling in excess of $350,000 for services rendered by the CPO and various attorneys and paralegals in the law firm of which the CPO was a member.
While §330(a) does not authorize ombudsmen to seek compensation for the work of attorneys and other professionals they seek to retain, one can analogize the appointment of an ombudsman to that of an examiner appointed under Bankruptcy Code §1104. Courts have authorized examiners in certain instances to employ professionals, such as attorneys, pursuant to code §105, notwithstanding the absence of any express authorization in the Bankruptcy Code for such employment. See, e.g., In re Southmark Corp., 113 B.R. 280, 283 (Bankr. N.D. Tex. 1990); In re Tarkowski, 104 B.R.
828, 829 (Bankr. E.D. Mich. 1989); In re Tighe Mercantile, Inc., 62 B.R. 995, 990-1000 (Bankr. S.D. Cal. 1986).
The official committee of unsecured creditors objected to the CPO’s final fee application, arguing that (i) code §332 does not authorize a CPO to retain professionals, (ii) the CPO could not seek to retain counsel nunc pro tunc, (iii) code §330 does not authorize attorneys employed by a CPO to be paid out of the estate, and (iv) even if the court allowed reimbursement of fees for the CPO’s professionals, certain of those fees were unreasonable and should be denied.
Sections 332 and 333, enacted in
2005, authorize the appointment
of ombudsmen, but contain no
provisions authorizing them to retain
professionals, including attorneys.
Simultaneously with the enactment
of §§332 and 333, Congress amended
§330(a)( 1) of the Bankruptcy Code
to permit Bankruptcy Courts to
award an ombudsman “reasonable
compensation for actual, necessary
services rendered by the . . . ombudsman
. . . and by any paraprofessional person
employed by such person . . . .”
The committee and the CPO
ultimately reached a settlement in
the dispute. Although the Bankruptcy
Court did not render a decision, the
case highlighted a serious issue that
persons appointed as ombudsmen
should address immediately upon
appointment: whether they need to
retain professionals and, if so, how to
minimize the risk of disallowance of
such professionals’ compensation.
The crucial fact for ombudsmen, like examiners, is that they must seek authority from the Bankruptcy Court before retaining attorneys or other professionals. Only once the attorney or other professional is properly retained, with Bankruptcy Court approval, may an ombudsman seek payment from the estate for services rendered by that professional.
While §330 as amended permits
ombudsmen to seek compensation
for paraprofessionals they employ,
the statute is silent with respect to
attorneys or other professionals they
retain. Under the plain language of
these provisions, ombudsmen are
not expressly authorized to seek
As already noted, §330(a) only authorizes
reasonable compensation for services
rendered by an ombudsman and any
paraprofessional he or she employs.
In the Chapter 11 case In re Synergy
Associates, Inc., 433 B.R. 316 (Bankr.
C.D. Cal. 2010), the Bankruptcy Court
addressed the issue of whether a PCO
could retain counsel. The Synergy court
found that Congress did not expressly
authorize the retention of legal counsel
by either a PCO or a CPO. Id. at 318.
By way of example, in In re Steve and Barry’s Manhattan LLC, et al., Case No. 08-12579 (ALG) (Bankr. S.D.N. Y. 2008), the individual who was appointed as CPO promptly filed an application for authority to employ a law firm pursuant to §§105 and 332 of the Bankruptcy Code, citing her need to rely upon the firm’s “considerable experience in privacy issues, as well as matters of bankruptcy law and procedures.” Id., Docket No. 938 at ¶¶ 8-9. No objections to the retention application were filed, and the Bankruptcy