Court Opinion

ID: 9689814
Source: CourtListenerOpinion
Date Created: 2023-08-24 18:47:43.069293+00
Date Added: 2024-06-11T18:15:42.049678
License: Public Domain

PAPPAS, Bankruptcy Judge,
concurring.
I concur with the analysis and reasoning in the Panel’s opinion. I write separately to acknowledge the genuine concerns expressed in the dissent about the potential for problems and policy implications of allowing chapter 11 debtors to grant their attorneys a secured interest in their cash assets as a condition of employment in bankruptcy cases. To be sure, I am no fan of secured professional employment arrangements, having shunned them on occasion when proposed. As a general rule, it may be profoundly unwise for a bankruptcy court to allow an attorney the leverage inherent in a security interest in funds given by the chapter 11 debtor as a retainer. When that is the case, the bankruptcy judge may and should reject such an arrangement.
But that said, I see no per se prohibition on such agreements under the Bankruptcy Code, and I do not believe we in the majority “turn our backs on a clear Congressional statutory mandate ....” To the contrary, Congress’ supposed condemnation of secured retainers is far from “clear.” Instead, Congress has instructed that a bankruptcy court may authorize a chapter 11 debtor to retain counsel “on any reasonable terms and conditions of employment, including a retainer .” 11 U.S.C. § 328(a) (emphasis added). But this provision confers no unfettered authority on the debtor and its lawyer. All significant terms of a professional’s employment by a chapter 11 debtor, whether they include security or not, are subject to full disclosure and prior court approval after evaluation by the presiding bankruptcy judge. 11 U.S.C. § 327(a); Fed. R. *742Bankr.P.2014(a). Even if the arrangement is approved, all fees secured by the attorney’s lien must be reasonable in amount, and are subject to further review and approval by the court. 11 U.S.C. § 330(a)(1)(A). Finally, “if such [employment terms] prove to have been improvident in light of developments not capable of being anticipated at the time of the fixing of such terms and conditions ...,” the arrangement can be scrapped by the bankruptcy court. 11 U.S.C. § 328(a).
I agree with the dissent that a professional’s decision to require a secured retainer may lead it to encounter difficult ethical decisions, and potentially may develop into “an interest materially adverse to the interest of the estate” such that the professional risks disqualification, and even loss of compensation, later in the case. 11 U.S.C. § 101(14)(E). But whether the potential costs associated with future adverse interests outweighs the possible benefits from such an employment relationship is, in the first instance, for the attorney and chapter 11 debtor to decide. If a secured retainer seems a reasonable and necessary step to counsel and client, the proposal must yet pass muster before the bankruptcy court. But if a secured retainer arrangement clears all these hurdles, I think Congress intended that the professional’s status be respected as against the claims of unsecured claimants.