In re Management Data Services, Inc.
| Citation | 43 BR 962 |
| Decision Date | 20 November 1984 |
| Docket Number | Bankruptcy No. 84-01557. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Western District of Washington |
| Parties | In re MANAGEMENT DATA SERVICES, INC. Debtor. |
Robert A. Kreiss, Seattle, Wash., for trustee.
Robert D. Steinberg, Bellevue, Wash., trustee.
Richard Cohen, Asst. U.S. Atty., Seattle, Wash., for intervenor.
The facts are undisputed. Debtor, Management Data Services, Inc., filed its petition under Chapter 7 of the Bankruptcy Code. The trustee was appointed from a panel of trustees selected by the Director of Administrative Office of the United States Courts without consultation with any bankruptcy judge pursuant to 28 U.S.C. § 604(f)1. The trustee seeks to employ an attorney pursuant to 11 U.S.C. § 327 which requires court approval of the trustee's chosen counsel.
Because the debtor's business consists of the manufacture of computers and software development for the telecommunications industry and because its assets are largely computer equipment or intellectual property in computer software, the trustee sought an attorney with a background in both computer and bankruptcy law. He selected attorney Robert Kreiss who holds a Ph.D. in mathematics, has taught mathematics, and worked as a computer programmer in California's "Silicon Valley." Mr. Kreiss has also taught courses in telecommunications law, copyright, trade secret, patent and trademark law at Benjamin N. Cardozo School of Law at Yeshiva University in New York. He authors a monthly article on computer-related law for Northwest Computing, a publication of the Northwest Computer Society. His law practice includes representation of clients in bankruptcy matters in this district.
Mr. Kreiss is an associate in a law firm which includes Larry Feinstein, a partner, who is the nephew of the wife of Judge Samuel J. Steiner, one of the four Bankruptcy Judges in the Western District of Washington. He has never met Judge Steiner.
Mr. Kreiss' employment as attorney for the trustee is barred by Bankruptcy Rule 5002 which provides:
No person may be appointed as a trustee or examiner or be employed as an attorney, accountant, appraiser, auctioneer, or other professional person pursuant to § 327 or § 1103 of the Code if (1) the person is a relative of any judge of the court making the appointment or approving the employment or (2) the person is or has been so connected with any judge of the court making the appointment or approving the employment as to render such appointment or employment improper. Whenever under this rule a person is ineligible for appointment or employment, the person\'s firm, partnership, corporation, or any other form of business association or relationship, and all members, associates and professional employees thereof are also ineligible for appointment or employment.
The trustee seeks a declaration that Rule 5002 is invalid to the extent that it bars a trustee in bankruptcy from employing as his attorney an attorney who is an associate of a law firm in which a partner is a relative of a sitting judge in the district.2 He contends that the Rule violates his First Amendment right to legal representation, his attorney's right to freedom of association, equal protection and due process, that the rule deals with substance rather than procedure, and that the Rule is void because it is vague and overbroad.
The United States Attorney intervened by stipulation to support the constitutionality of Rule 5002 pursuant to 28 U.S.C. § 2403(a) and F.R.C.P. 24(a). He contends that the trustee lacks standing because he has suffered no injury and that he cannot argue any injury to his attorney because the attorney is not a party to the action. The United States further contends that no protected right to legal representation or freedom of association is violated, the requirements of equal protection and due process have been met, and the Rule is not impermissibly vague or overbroad.
The issues presented will be discussed under the subject headings hereinafter stated.
The United States alleges that the trustee lacks standing to challenge Rule 5002 because he has suffered no injury sufficient to meet the standing requirements of Article III of the Constitution. It is argued that the only injury the trustee asserts is inference with his right to employ counsel of his choice and since there is no constitutional right to counsel in a civil matter there is no justiciable controversy.
Declaratory relief is appropriate where the facts alleged show that there is a substantial controversy between parties having adverse interests of sufficient immediacy and reality to warrant issuance of declaratory relief. Evers v. Dwyer, 358 U.S. 202, 79 S.Ct. 178, 3 L.Ed.2d 222 (1958); Maryland Casualty Co. v. Pacific Coal and Oil Co., 312 U.S. 270, 61 S.Ct. 510, 85 L.Ed. 826 (1941). The standard is the same as the standard set forth in Warth v. Seldin, 422 U.S. 490, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975), which states:
As an aspect of justiciability, the standing question is whether or not the plaintiff has "alleged such a personal stake in the outcome of the controversy" as to warrant his invocation of federal court jurisdiction and to justify exercise of the court\'s remedial powers on his behalf. Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691 703, 7 L.Ed.2d 663 (1962). . . . A federal court\'s jurisdiction therefore can be invoked only when the plaintiff himself has suffered "some threatened or actual injury resulting from the putatively illegal action. . . ." (emphasis in original). Id. at 498-99, 95 S.Ct. at 2205.
In order to resolve the question of Article III standing it is not necessary to weigh the merits of the trustee's claim. Id. at 500, 95 S.Ct. at 2206, citing Flast v. Cohen, 392 U.S. 83, 99, 88 S.Ct. 1942, 1952, 20 L.Ed.2d 947 (1968).
The trustee will in fact suffer injury from the operation of Rule 5002. It is solely because of the Rule that he is unable to employ the attorney of his choice to represent the estate. He deliberately selected counsel with a background appropriate to the needs of the estate. His injury can be fairly traced to the challenged Rule and it creates a controversy with the United States that is real and admits of specific relief through judicial decree of a conclusive nature. This ensures litigation in a concrete factual setting. The trustee is not a mere debating partner. He has a real stake in the outcome. Valley Forge College v. Americans United, 454 U.S. 464, 102 S.Ct. 752, 70 L.Ed.2d 700 (1982).
Moreover, Mr. Kreiss, as indicated by the record, is before this court requesting that he be permitted to accept the employment proffered to him by the trustee. He is well qualified. The court would not hesitate to enter an order authorizing employment but for Rule 5002. Both he and the trustee have an interest in this matter. All interested parties are necessary parties. Diamond Shamrock v. Lumbermen's Mutual Casualty Co., 416 F.2d 707 (7th Cir. 1969); Franklin Life Ins. Co. v. Johnson, 157 F.2d 653 (10th Cir.1946). It is a basic purpose of the declaratory judgment act that all parties having an interest in the outcome and who will be bound by it should be joined. Diamond Shamrock, supra. The trustee has in fact selected Mr. Kreiss to represent him and Mr. Kreiss accepts that employment. His rights as an attorney are inextricably involved in the court's decision. If the Rule is deemed valid, it will not be possible for him to be employed as attorney for a trustee or debtor in possession in this district. While Mr. Kreiss was not formally joined as a party in this matter, his affidavit makes his position clear. He has briefed and presented his position and that of the trustee at oral argument without objection from the United States. The court finds that Article III standing requirements have been met by both the trustee and the attorney he seeks to employ. He is deemed joined as a party for purposes of this declaratory relief motion.
Bankruptcy Rule 5002 was promulgated pursuant to the statutory authority granted the Supreme Court by 28 U.S.C. § 2075 which states:
A complete set of Bankruptcy Rules was prepared by an Advisory Committee appointed by the Chief Justice. The Committee's final draft was adopted by the Judicial Conference of the United States and thereafter submitted to Congress by the Chief Justice. Congress took no affirmative action and the draft became effective August...
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