Opinion ID: 6496837
Heading Depth: 3
Heading Rank: 1

Heading: Alleged Direct Conflict of Interest

Text: To the extent Continental and National Union argue that Warren Pumps requires Patton’s disqualification because of the direct conflict of interest it creates between the two companies and Patton, the Bankruptcy Court was correct in ruling that the prospective waiver disposed of this issue. In that waiver provision, those Insurers acknowledged that Young Conaway maintained a “substantial corporate workout, bankruptcy[,] and insolvency practice,” and that they “agree[d] that [Young Conaway] may represent other clients (i) in workout, bankruptcy[,] and insolvency proceedings, and (ii) in connection with trusts established pursuant to section 524(g) of the Bankruptcy Code.” JA 898. They also agreed they “w[ould] not assert that this instant Engagement is a basis for disqualifying [Young Conaway] from representing others” in those bankruptcy-related matters if those Insurers were creditors of the debtor in those bankruptcies and if the interests of Young Conaway’s clients in those matters were “directly adverse” to the Insurers. 15 JA 898–99. The Insurers next argue that it was impossible for them to have given informed consent to the conflict when it arose in the Imerys bankruptcy because Patton’s prepetition work as Proposed FCR was done pursuant to a non-disclosure agreement. Even aside from the fact that the Insurers are sophisticated parties who were represented by both an agent 15 Of course, this was subject to the condition that the future bankruptcy-related matters were not “the same matter or a matter substantially related to the same matter” as the one in which Young Conaway represented the Insurers. JA 898. For the reasons explained below, however, Continental and National Union have not met their burden to establish that this condition of the waiver was not met. See, e.g., Satellite Fin. Planning Corp. v. First Nat’l Bank of Wilmington, 652 F. Supp. 1281, 1283 (D. Del. 1987). 28 and that agent’s insurance counsel, their argument misapprehends what we require of valid prospective waivers. Prospective waivers do not necessitate a second round of consent when a future conflict actually arises; that would defeat the purpose of obtaining a prospective waiver in the first place. Rather, the question is whether at the time of signing the prospective waiver the clients could give “truly informed consent” as to the potential conflicts that foreseeably might arise in the future. Congoleum, 426 F.3d at 691; MODEL RULES OF PRO. CONDUCT, r. 1.7 cmt. 22 (“The effectiveness of such [prospective] waivers is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails.”). And the waiver at issue here was quite clear not only that Young Conaway might be involved in bankruptcy proceedings in which the Insurers would be creditors, but also that the firm was likely to be involved in FCR work specifically. As such, the Bankruptcy Court was justified in concluding that the Warren Pumps insurers would have known at the time of signing that there was a material risk that Young Conaway would be involved in the future in § 524(g) proceedings that would also involve insurance company creditors, a risk that materialized with the Imerys bankruptcy. 16 See, e.g., In re Fisker Auto. Holdings, Inc. S’holder Litig., 2018 WL 3991470, at –4 (D. Del. Aug. 20, 2018) (upholding the 16 Along similar lines, although we concluded supra that § 327 does not govern FCR appointments, we note that even the Insurer’s requested analysis under that section’s per se disqualification provision would have required more information regarding the Warren Pumps litigation. In urging us to apply § 327’s requirements, the Insurers do not identify an actual (or even a potential or apparent) conflict other than the fact of Young Conaway’s involvement in the Warren Pumps litigation. As recently explained, “a conflict is actual [for the purposes of § 327] when the specific facts before the bankruptcy court suggest that ‘it is likely that a professional will be placed in a position permitting it to favor one interest over an impermissibly conflicting interest.’” Boy Scouts, — F.4th —, 2022 WL 1634643, at  (3d Cir. 2022) (quoting In re Pillotex, Inc., 304 F.3d 246, 254 (3d Cir. 2002)). Those facts are lacking here. 29 validity of a prospective waiver based on an analysis of the waiver’s language and the sophistication of the parties).