Opinion ID: 6496837
Heading Depth: 3
Heading Rank: 4

Heading: Administrability

Text: We next address the administration of the fiduciary standard in the FCR appointment process. To be clear, that standard does not herald a categorical approach to an FCR’s appointment. The parties to this appeal vigorously dispute whether Patton had a concurrent conflict of interest as a result of the Warren Pumps litigation, the implication being that it would disqualify him per se. 13 But the question of whether a conflict exists is less relevant to an appointment than the nature of the conflict and importance of the conflict to the future claimants’ interests. In a given instance, a purported ethical conflict might have minimal or no 13 The categorical approach advocated by the Insurers would effectively preclude service by the most effective FCRs, for the reality is that the current universe of qualified and experienced FCRs is small, see Lloyd Dixon et al., Asbestos Bankruptcy Trusts: An Overview of Trust Structure and Activity with Detailed Reports on the Largest Trusts, RAND INST. FOR CIV. JUST., at App. B (2010) (listing 26 of the largest active trusts and three of the largest proposed trusts as of 2010, with seven FCRs who serve on two or more of them); JA 735 (noting that Patton currently serves as FCR for six different trusts), and it is entirely to be expected that the law firms that are home to those professionals with experience in asbestosrelated bankruptcies would also be involved in asbestos-related insurance coverage litigation. 25 impact on an FCR’s ability to successfully represent the future claimants’ interests. For instance, the litigation giving rise to the conflict may be long over or subject to effective ethical walls at the FCR’s firm. In such cases, the court, in its discretion, may well determine that the proposed FCR still meets the appointment requirements. 14 The comparison to a creditors’ committee is again instructive, for those members have some degree of inherent “conflict” in that they each have their own interests as individual creditors that are arguably adverse to other creditors. Yet they may still serve on the committee if they can act independently of their self-interest and fulfill their fiduciary duties to the creditors as a whole. See Westmoreland Hum. 14 Along similar lines, the Insurers ask us to decide whether Rule 1.7 of the Model Rules of Professional Conduct applies to the FCR role, which Imerys disputes because the FCR is not, technically, a “lawyer” representing a “client” as contemplated by the terms of the rule. But this debate is largely beside the point. First, even for those practicing lawyers who are undisputedly covered by the ethics rules, the bankruptcy court still has discretion to decide whether or not those rules should result in disqualification under the circumstances: “[A] court’s . . . decision about whether to use that power is discretionary and ‘never is automatic.’” In re Boy Scouts of America, — F.4th —, 2022 WL 1634643, at  (3d Cir. 2022) (quoting United States v. Miller, 624 F.2d 1198, 1201 (3d Cir. 1980)). Thus, “even when an ethical conflict exists (or is assumed to exist), a court may conclude based on the facts before it that disqualification is not an appropriate remedy.” Id. Second, the ethics rules themselves, even if they applied, would not determine whether an FCR candidate meets the appointment standard we set today. If an “actual conflict” under the Rules is merely technical and extremely unlikely to prejudice the interests of the future claimants, the bankruptcy court can still properly make the appointment under § 524 after engaging in the appropriate analysis of the future claimants’ interests and the appointee’s abilities and qualifications. Cf. id. at  (noting in a conflicts analysis under § 327 that the Rules “may be informative in some cases,” but are not determinative of what an “actual conflict” is under the terms of that section). 26 Opportunities, Inc. v. Walsh, 246 F.3d 233, 256 (3d Cir. 2001) (“We have construed § 1103(c) as implying a fiduciary duty on the part of members of a creditor’s committee . . . toward their constituent members. A committee member violates its fiduciary duty by pursuing a course of action that furthers its self-interest to the potential detriment of fellow committee members.” (citing In re PWS Holding Corp., 228 F.3d at 246)). Just so, the mere existence of a technical conflict should not disqualify an FCR if the bankruptcy court concludes he or she will meet the duties of independence and undivided loyalty and will serve as an effective advocate for the future claimants. While we have settled on an FCR appointment standard, we do not today prescribe any particular process the bankruptcy court must follow in making that appointment. Of course, implicit in the FCR appointment standard is one procedural requirement: that whatever process the bankruptcy court follows ensures that the court has the information necessary to assess the candidate(s)’s qualifications. But given that “as part of the proceedings leading to issuance of [a channeling] injunction, the court appoints a legal representative for the purpose of protecting the rights of” future claimants, 11 U.S.C. § 524(g)(4)(B)(i), variations in the appointment process are otherwise within the discretion of the bankruptcy court.